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Learning from input-output mixes in DEA: a proportional measure for slack-based efficient projections

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Author Info
Laurens Cherchye (Centre for Economic Studies, Catholic University of Leuven, Leuven, Belgium)
Tom Van Puyenbroeck (Centre for Economic Studies, Catholic University of Leuven, Leuven, Belgium)

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Abstract

Several Data Envelopment Analysis (DEA) models use a radial distance measure that is based on the Debreu-Farrell notion of (in)efficiency. While this measure has an attractive interpretation, its use may be problematic if slacks or zeros are present in the data. The additive DEA model can perfectly deal with these problems, but the meaning of its associated scores is less intuitive than the one attached to the radial measures. We introduce an alternative efficiency measure, based on the results of the additive model, that can be decomposed in a Debreu-Farrell component and a factor that captures differences in input-output mixes with respect to those of the best practice reference observation. On an aggregate level, this second component can be considered as an indicator of the dispersion between radial efficiency measurement and results based on the Pareto-Koopmans efficiency notion. On the individual level, the measure allows us to regard relative inefficiency as resulting from (i) a divergence of implicit cost price vectors, and (ii) a cost level that is too high, even after adjustment for the implicit cost prices. Copyright © 1999 John Wiley & Sons, Ltd.

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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 20 (1999)
Issue (Month): 3 ()
Pages: 151-161
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Handle: RePEc:wly:mgtdec:v:20:y:1999:i:3:p:151-161

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Charnes, A. & Cooper, W. W. & Golany, B. & Seiford, L. & Stutz, J., 1985. "Foundations of data envelopment analysis for Pareto-Koopmans efficient empirical production functions," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 91-107. [Downloadable!] (restricted)
  2. Charnes, A. & Cooper, W. W. & Rhodes, E., 1979. "Measuring the efficiency of decision-making units," European Journal of Operational Research, Elsevier, vol. 3(4), pages 339-338, July. [Downloadable!] (restricted)
  3. Robert Russell, R., 1985. "Measures of technical efficiency," Journal of Economic Theory, Elsevier, vol. 35(1), pages 109-126, February. [Downloadable!] (restricted)
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