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Least-Distance Range Adjusted Measure in DEA: Efficiency Evaluation and Benchmarking for Japanese Banks

Author

Listed:
  • Xu Wang

    (Department of Industrial and Management, Systems Engineering, Graduate School of Creative, Science and Engineering, Waseda University, 3-4-1 Okubo, Shinjuku-ku, Tokyo 169-8555, Japan)

  • Takashi Hasuike

    (Department of Industrial and Management, Systems Engineering, School of Creative, Science and Engineering, Waseda University, 3-4-1 Okubo, Shinjuku-ku, Tokyo 169-8555, Japan)

Abstract

This study aims to formulate the least-distance range adjusted measure (LRAM) in data envelopment analysis (DEA) and apply it to evaluate the relative efficiency and provide the benchmarking information for Japanese banks. In DEA, the conventional range adjusted measure (RAM) acts as a well-defined model that satisfies a set of desirable properties. However, because of the practicality of the least-distance measure, we formulate the LRAM and propose the use of an effective mixed integer programming (MIP) approach to compute it in this study. The formulated LRAM (1) satisfies the same desirable properties as the conventional RAM, (2) provides the least-distance benchmarking information for inefficient decision-making units (DMUs), and (3) can be computed easily by using the proposed MIP approach. Here, we apply the LRAM to a Japanese banking data set corresponding to the period 2017–2019. Based on the results, the LRAM generates higher efficiency scores and allows inefficient banks to improve their efficiency with a smaller extent of input–output modification than that required by the RAM, thereby indicating that the LRAM can provide more easy-to-achieve benchmarking information for inefficient banks. Therefore, from the perspective of the managers of DMUs, this study provides a valuable LRAM for efficiency evaluation and benchmarking analysis.

Suggested Citation

  • Xu Wang & Takashi Hasuike, 2022. "Least-Distance Range Adjusted Measure in DEA: Efficiency Evaluation and Benchmarking for Japanese Banks," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 39(06), pages 1-22, December.
    • Handle: RePEc:wsi:apjorx:v:39:y:2022:i:06:n:s0217595922500063
    DOI: 10.1142/S0217595922500063
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