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The Validity of Input Aggregation in DEA Models: A Statistical Test

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  • Subhash C. Ray

    (University of Connecticut)

  • Kankana Mukherjee

    (Worcester Polytechnic Institute)

Abstract

We address the problem of input aggregation in DEA models within a broader framework and provide a direct link between input aggregation in DEA on the one hand and the test of parameter restrictions implied by input aggregation in an explicitly specified production function on the other. We show that when input prices vary across firms, the DEA LP problems for measuring efficiency scores of individual firms from the aggregated model have to be appropriately modified. An empirical application of the revised model using data from Indian manufacturing sector reveals that the validity of aggregating production and non-production workers into a composite labor input using Banker's F-test cannot be rejected.

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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2005-54.

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Length: 26 pages
Date of creation: Oct 2005
Date of revision: Nov 2006
Handle: RePEc:uct:uconnp:2005-54

Note: The paper has benefited from comments received from participants at the 2006 INFORMS Annual Meeting.
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Keywords: Banker's F-test; data envelopment analysis; input aggregation; parameter restrictions;

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  1. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-97, May.
  2. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
  3. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  4. Rajiv D. Banker, 1993. "Maximum Likelihood, Consistency and Data Envelopment Analysis: A Statistical Foundation," Management Science, INFORMS, vol. 39(10), pages 1265-1273, October.
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