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Efficiency Evaluations Based on Potential (Non-Proportional) Improvements

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  • Peter Bogetoft
  • Jens Hougaard

Abstract

Efficiency evaluation of a Decision Making Unit (DMU) involves two issues: 1) selection of an appropriate reference plan against which to evaluate the DMU and 2) measurement of performance slack. In the literature, these issues are mixed in one and the same operation but we argue that it has theoretical as well as practical advantages to separate them. We provide an axiomatic characterization of the implicit Farrell selection. This approach, ignores important aspects of the technology by focussing on proportional variations in inputs (or outputs). We propose a new approach where potential improvements are used to guide the selection of reference plans. A characterization of this approach is provided and an associated translation invariant, strictly monotonous and continuous efficiency index is suggested. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • Peter Bogetoft & Jens Hougaard, 1999. "Efficiency Evaluations Based on Potential (Non-Proportional) Improvements," Journal of Productivity Analysis, Springer, vol. 12(3), pages 233-247, November.
  • Handle: RePEc:kap:jproda:v:12:y:1999:i:3:p:233-247
    DOI: 10.1023/A:1007848222681
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    References listed on IDEAS

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    1. Fare, Rolf & Knox Lovell, C. A., 1978. "Measuring the technical efficiency of production," Journal of Economic Theory, Elsevier, vol. 19(1), pages 150-162, October.
    2. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
    3. Hougaard, Jens Leth & Tvede, Mich, 2002. "Benchmark selection: An axiomatic approach," European Journal of Operational Research, Elsevier, vol. 137(1), pages 218-228, February.
    4. Peter Bogetoft, 1997. "DEA-based yardstick competition: The optimality of best practice regulation," Annals of Operations Research, Springer, vol. 73(0), pages 277-298, October.
    5. Peter Bogetoft, 1994. "Incentive Efficient Production Frontiers: An Agency Perspective on DEA," Management Science, INFORMS, vol. 40(8), pages 959-968, August.
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    Citations

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    Cited by:

    1. Asmild, Mette & Kronborg, Dorte & Matthews, Kent, 2016. "Introducing and modeling inefficiency contributions," European Journal of Operational Research, Elsevier, vol. 248(2), pages 725-730.
    2. Gómez-Calvet, Roberto & Conesa, David & Gómez-Calvet, Ana Rosa & Tortosa-Ausina, Emili, 2014. "Energy efficiency in the European Union: What can be learned from the joint application of directional distance functions and slacks-based measures?," Applied Energy, Elsevier, vol. 132(C), pages 137-154.
    3. William Cooper & Jesús Pastor & Fernando Borras & Juan Aparicio & Diego Pastor, 2011. "BAM: a bounded adjusted measure of efficiency for use with bounded additive models," Journal of Productivity Analysis, Springer, vol. 35(2), pages 85-94, April.
    4. Bogetoft, Peter & Leth Hougaard, Jens, 2004. "Super efficiency evaluations based on potential slack," European Journal of Operational Research, Elsevier, vol. 152(1), pages 14-21, January.
    5. Kapelko, Magdalena & Oude Lansink, Alfons, 2017. "Dynamic multi-directional inefficiency analysis of European dairy manufacturing firms," European Journal of Operational Research, Elsevier, vol. 257(1), pages 338-344.
    6. repec:spr:cejnor:v:26:y:2018:i:1:d:10.1007_s10100-017-0473-z is not listed on IDEAS
    7. repec:bla:jageco:v:68:y:2017:i:2:p:579-599 is not listed on IDEAS
    8. Mette Asmild & Tomas Baležentis & Jens Hougaard, 2016. "Multi-directional program efficiency: the case of Lithuanian family farms," Journal of Productivity Analysis, Springer, vol. 45(1), pages 23-33, February.
    9. Jesus Pastor & C. Lovell & Juan Aparicio, 2012. "Families of linear efficiency programs based on Debreu’s loss function," Journal of Productivity Analysis, Springer, vol. 38(2), pages 109-120, October.
    10. Mette Asmild & Jens Hougaard & Dorte Kronborg & Hans Kvist, 2003. "Measuring Inefficiency Via Potential Improvements," Journal of Productivity Analysis, Springer, vol. 19(1), pages 59-76, January.
    11. Ke Wang & Shiwei Yu & Mo-Jie Li & Yi-Ming Wei, 2015. "Multi-directional efficiency analysis-based regional industrial environmental performance evaluation of China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 75(2), pages 273-299, February.
    12. repec:kap:jproda:v:49:y:2018:i:1:d:10.1007_s11123-017-0519-1 is not listed on IDEAS
    13. Mette Asmild & Torben Holvad & Jens Hougaard & Dorte Kronborg, 2009. "Railway reforms: do they influence operating efficiency?," Transportation, Springer, vol. 36(5), pages 617-638, September.
    14. Juan Aparicio & José Ruiz & Inmaculada Sirvent, 2007. "Closest targets and minimum distance to the Pareto-efficient frontier in DEA," Journal of Productivity Analysis, Springer, vol. 28(3), pages 209-218, December.
    15. Wang, Ke & Wei, Yi-Ming & Zhang, Xian, 2013. "Energy and emissions efficiency patterns of Chinese regions: A multi-directional efficiency analysis," Applied Energy, Elsevier, vol. 104(C), pages 105-116.
    16. Mette Asmild & Tomas Baležentis & Jens Leth Hougaard, 2016. "Multi-directional productivity change: MEA-Malmquist," Journal of Productivity Analysis, Springer, vol. 46(2), pages 109-119, December.
    17. Baležentis, Tomas & De Witte, Kristof, 2015. "One- and multi-directional conditional efficiency measurement – Efficiency in Lithuanian family farms," European Journal of Operational Research, Elsevier, vol. 245(2), pages 612-622.
    18. Torben Holvad & Jens Hougaard & Dorte Kronborg & Hans Kvist, 2004. "Measuring inefficiency in the Norwegian bus industry using multi-directional efficiency analysis," Transportation, Springer, vol. 31(3), pages 349-369, August.
    19. repec:spr:grdene:v:14:y:2005:i:3:d:10.1007_s10726-005-6493-4 is not listed on IDEAS
    20. Mojtaba Ghiyasi & Jens Leth Hougaard, 2014. "Ranking Production Units According to Marginal Efficiency Contribution," MSAP Working Paper Series 04_2014, University of Copenhagen, Department of Food and Resource Economics.
    21. González, Eduardo & Cárcaba, Ana, 2001. "A Resource-Based Interpretation of Technical Efficiency Indexes," Efficiency Series Papers 2001/03, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    22. Peter Bogetoft & Kurt Nielsen, 2005. "Internet Based Benchmarking," Group Decision and Negotiation, Springer, vol. 14(3), pages 195-215, May.
    23. Bogetoft, Peter, 1999. "Process Aggregation and Efficiency," Unit of Economics Working papers 24190, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.

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    Keywords

    Evaluation; peer selection; efficiency index; DEA;

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