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Lower bound of cost efficiency measure in DEA with incomplete price information

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  • Lei Fang

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  • Hecheng Li

Abstract

The conventional cost efficiency model assumes that all the input prices are fixed and known exactly at each decision making unit. In practice, however, exact knowledge of prices is difficult and prices may be subject to variations over very short periods of time. In this paper, we develop a new DEA model, which can be transformed into a special case of bi-level linear program, to calculate the lower bound of CE efficiency from the pessimistic viewpoints based on the shortcomings of the existing approaches. As the input (price) cone of the pessimistic CE model tightens, the objective function converges to the traditional Farrell cost efficiency measure. Numerical examples are used to demonstrate the proposed approach and compare the results with those obtained with the existing approaches. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Lei Fang & Hecheng Li, 2013. "Lower bound of cost efficiency measure in DEA with incomplete price information," Journal of Productivity Analysis, Springer, vol. 40(2), pages 219-226, October.
  • Handle: RePEc:kap:jproda:v:40:y:2013:i:2:p:219-226
    DOI: 10.1007/s11123-012-0323-x
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    References listed on IDEAS

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    1. Giove, Silvio & Funari, Stefania & Nardelli, Carla, 2006. "An interval portfolio selection problem based on regret function," European Journal of Operational Research, Elsevier, vol. 170(1), pages 253-264, April.
    2. Fang, Lei & Li, Hecheng, 2012. "A comment on “cost efficiency in data envelopment analysis with data uncertainty”," European Journal of Operational Research, Elsevier, vol. 220(2), pages 588-590.
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    4. Thompson, Russell G. & Brinkmann, Emile J. & Dharmapala, P. S. & Gonzalez-Lima, M. D. & Thrall, Robert M., 1997. "DEA/AR profit ratios and sensitivity of 100 large U.S. banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 213-229, April.
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    7. Jahanshahloo, G.R. & Soleimani-damaneh, M. & Mostafaee, A., 2008. "A simplified version of the DEA cost efficiency model," European Journal of Operational Research, Elsevier, vol. 184(2), pages 814-815, January.
    8. 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.
    9. Taylor, William M. & Thompson, Russell G. & Thrall, Robert M. & Dharmapala, P. S., 1997. "DEA/AR efficiency and profitability of Mexican banks a total income model," European Journal of Operational Research, Elsevier, vol. 98(2), pages 346-363, April.
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    Cited by:

    1. Fang, Lei & Li, Hecheng, 2015. "Cost efficiency in data envelopment analysis under the law of one price," European Journal of Operational Research, Elsevier, vol. 240(2), pages 488-492.

    More about this item

    Keywords

    Data envelopment analysis; Cost efficiency; Price uncertainty; Weight restriction; C67;

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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