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Opening the “Black Box” of Efficiency Measurement: Input Allocation in Multioutput Settings

Author

Listed:
  • Laurens Cherchye

    () (Center for Economic Studies, University of Leuven, B-8500 Kortrijk, Belgium)

  • Bram De Rock

    () (ECARES-ECORE, Université Libre de Bruxelles, B-1050 Brussels, Belgium)

  • Bart Dierynck

    () (Department of Accounting, Tilburg School of Economics and Management, Tilburg University, 5000 LE Tilburg, The Netherlands)

  • Filip Roodhooft

    () (Department of Accounting, Finance, and Insurance, University of Leuven; and Accounting and Finance, Vlerick Business School, B-3000 Leuven, Belgium)

  • Jeroen Sabbe

    () (Center for Economic Studies, University of Leuven, B-8500 Kortrijk, Belgium)

Abstract

We develop a new data envelopment analysis (DEA)-based methodology for measuring the efficiency of decision-making units (DMUs) characterized by multiple inputs and multiple outputs. The distinguishing feature of our method is that it explicitly includes information about output-specific inputs and joint inputs in the efficiency evaluation. This method contributes to opening the “black box” of efficiency measurement in two different ways. First, including information on the input allocation substantially increases the discriminatory power of the efficiency measurement. Second, it allows us to decompose the efficiency value of a DMU into output-specific efficiency values, which facilitates the identification of the outputs the manager should focus on to remedy the observed inefficiency. We demonstrate the usefulness and managerial implications of our methodology by means of a unique data set collected from the activity-based costing (ABC) system of a large service company with 290 DMUs.

Suggested Citation

  • Laurens Cherchye & Bram De Rock & Bart Dierynck & Filip Roodhooft & Jeroen Sabbe, 2013. "Opening the “Black Box” of Efficiency Measurement: Input Allocation in Multioutput Settings," Operations Research, INFORMS, vol. 61(5), pages 1148-1165, October.
  • Handle: RePEc:inm:oropre:v:61:y:2013:i:5:p:1148-1165
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    References listed on IDEAS

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