An improved equilibrium-efficient DEA approach to efficiency analysis with fixed-sum factors considering management centralization

Efficiency evaluation for decision-making units (DMUs) with fixed-sum factors has gained increasing attention in the data envelopment analysis (DEA) community. Despite significant developments in fixed-sum DEA approaches, there persist two key limitations: (1) residual inefficiency and reliance on subjective selection in formulating the best practice frontier, and (2) failing to account for diverse degrees of management centralization. To address these two issues, this paper proposes an integrated equilibrium-efficient-based measure (IEEM). The IEEM approach simultaneously adjusts all inputs and outputs of DMUs to eliminate their inefficiency for building improved equilibrium-efficient frontiers (EEFs) and enables the comparison of DMUs with all feasible EEFs to yield stable efficiency scores. We further introduce an endogenous direction-selecting mechanism into IEEM to flexibly characterize DMUs’ preferences under diverse degrees of centralization management. The proposed IEEM approach is thus able to achieve superior equilibrium-efficiency under fixed-sum constraints and properly model the diverse degrees of management centralization in different fixed-sum managerial settings, which make the evaluation results more accurate and realistic. To simplify the calculation of the non-linear IEEM model, an equivalent linear algorithm is also developed. Finally, we demonstrate IEEM’s advantages and effectiveness using numerical and empirical examples.