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Using least squares and tobit in second stage DEA efficiency analyses

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  • McDonald, John
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    Abstract

    The paper examines second stage DEA efficiency analyses, within the context of a censoring data generating process (DGP) and a fractional data DGP, when efficiency scores are treated as descriptive measures of the relative performance of units in the sample. It is argued that the efficiency scores are not generated by a censoring process but are fractional data. Tobit estimation in this situation is inappropriate. In contrast, ordinary least squares is a consistent estimator, and, if White's [White, H., 1980. A heteroskedastic-consistent covariance matrix and a direct test for heteroskedasticity. Econometrica 48, 817-838] heteroskedastic-consistent standard errors are calculated, large sample tests can be performed which are robust to heteroskedasticity and the distribution of the disturbances. For a more refined analysis Papke and Wooldridge's [Papke, L.E., Wooldridge, J.M., 1996. Econometric methods for fractional response variables with an application to 401(k) plan participation rates. Journal of Applied Econometrics 11 (6), 619-632] method has some advantages, but is more complex and requires special programming.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 197 (2009)
    Issue (Month): 2 (September)
    Pages: 792-798

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    Handle: RePEc:eee:ejores:v:197:y:2009:i:2:p:792-798

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Data envelopment analysis Measuring efficiency Tobit Least squares Fractional data;

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    Cited by:
    1. Cosmin Eugen ENACHE, 2012. "The efficiency of expenditure-related redistributive policies in the European countries," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 5(18), pages 380-394.
    2. Emma Medin & Kjartan Anthun & Unto Häkkinen & Sverre Kittelsen & Miika Linna & Jon Magnussen & Kim Olsen & Clas Rehnberg, 2011. "Cost efficiency of university hospitals in the Nordic countries: a cross-country analysis," The European Journal of Health Economics, Springer, vol. 12(6), pages 509-519, December.
    3. Mario Fortin & André Leclerc, 2011. "L’Efficience Des Cooperatives De Services Financiers: Une Analyse De La Contribution Du Milieu," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 82(1), pages 45-62, March.
    4. Andries, Alin Marius & Cocris, Vasile, 2010. "A Comparative Analysis of the Efficiency of Romanian Banks," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 54-75, December.
    5. Colen, Pieter & Lambrecht, Marc, 2012. "Performance evaluation of service centers for a servitizing company," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/369856, Katholieke Universiteit Leuven.
    6. Valentina Cristiana MATERIA & Roberto ESPOSTI, 2010. "Modelling Agricultural Public R&D Cofinancing Within A Principal-Agent Framework. The case of an Italian region," Working Papers 347, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    7. Halkos, George & Tzeremes, Nickolaos, 2012. "A conditional directional distance function approach for measuring regional environmental efficiency: Evidence from the UK regions," MPRA Paper 38147, University Library of Munich, Germany.
    8. Léopold Simar & Paul Wilson, 2011. "Two-stage DEA: caveat emptor," Journal of Productivity Analysis, Springer, vol. 36(2), pages 205-218, October.
    9. Sipilainen, Timo & Huhtala, Anni, 2012. "Opportunity Costs of Providing Crop Diversity in Organic and Conventional Farming," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126652, International Association of Agricultural Economists.
    10. Alexander Cotte Poveda, 2012. "Estimating Effectiveness of the Control of Violence and Socioeconomic Development in Colombia: An Application of Dynamic Data Envelopment Analysis and Data Panel Approach," Social Indicators Research, Springer, vol. 105(3), pages 343-366, February.
    11. José Manuel Cordero Ferrera & Francisco Pedraja Chaparro & Javier Salinas Jiménez, 2009. "Efficiency measurement in the Spanish cadastral units through DEA," Working Papers 2009/35, Institut d'Economia de Barcelona (IEB).
    12. Watto, Muhammad Arif & Mugera, Amin William, 2013. "Measuring Groundwater Irrigation Efficiency in Pakistan: A DEA Approach Using the Sub-vector and Slack-based Models," Working Papers 144943, University of Western Australia, School of Agricultural and Resource Economics.

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