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Ranking Intervals and Dominance Relations for Ratio-Based Efficiency Analysis

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  • Ahti Salo

    ()
    (Systems Analysis Laboratory, Aalto University School of Science, 00076 Aalto, Finland)

  • Antti Punkka

    ()
    (Systems Analysis Laboratory, Aalto University School of Science, 00076 Aalto, Finland)

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    Abstract

    We develop comparative results for ratio-based efficiency analysis (REA) based on the decision-making units' (DMUs') relative efficiencies over sets of feasible weights that characterize preferences for input and output variables. Specifically, we determine (i) ranking intervals, which indicate the best and worst efficiency rankings that a DMU can attain relative to other DMUs; (ii) dominance relations, which show what other DMUs a given DMU dominates in pairwise efficiency comparisons; and (iii) efficiency bounds, which show how much more efficient a given DMU can be relative to some other DMU or a subset of other DMUs. Unlike conventional efficiency scores, these results are insensitive to outlier DMUs. They also show how the DMUs' efficiency ratios relate to each other for all feasible weights, rather than for those weights only for which the data envelopment analysis (DEA) efficiency score of some DMU is maximized. We illustrate the usefulness of these results by revisiting reported DEA studies and by describing a recent case study on the efficiency comparison of university departments. This paper was accepted by Teck-Hua Ho, decision analysis.

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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1265
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 57 (2011)
    Issue (Month): 1 (January)
    Pages: 200-214

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    Handle: RePEc:inm:ormnsc:v:57:y:2011:i:1:p:200-214

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    Related research

    Keywords: efficiency analysis; data envelopment analysis; preference modeling;

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    Cited by:
    1. Lim, Sungmook & Oh, Kwang Wuk & Zhu, Joe, 2014. "Use of DEA cross-efficiency evaluation in portfolio selection: An application to Korean stock market," European Journal of Operational Research, Elsevier, vol. 236(1), pages 361-368.
    2. Kangaspunta, Jussi & Liesiƶ, Juuso & Salo, Ahti, 2012. "Cost-efficiency analysis of weapon system portfolios," European Journal of Operational Research, Elsevier, vol. 223(1), pages 264-275.

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