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Dealing with small samples and dimensionality issues in data envelopment analysis

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  • Zervopoulos, Panagiotis

Abstract

Data Envelopment Analysis (DEA) is a widely applied nonparametric method for comparative evaluation of firms’ efficiency. A deficiency of DEA is that the efficiency scores assigned to each firm are sensitive to sampling variations, particularly when small samples are used. In addition, an upward bias is present due to dimensionality issues when the sample size is limited compared to the number of inputs and output. As a result, in case of small samples, DEA efficiency scores cannot be considered as reliable measures. The DEA Bootstrap addresses this limitation of the DEA method as it provides the efficiency scores with stochastic properties. However, the DEA Bootstrap is still inappropriate in the presence of small samples. In this context, we introduce a new method that draws on random data generation procedures, unlike Bootstrap which is based on resampling, and Monte Carlo simulations.

Suggested Citation

  • Zervopoulos, Panagiotis, 2012. "Dealing with small samples and dimensionality issues in data envelopment analysis," MPRA Paper 39226, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:39226
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    File URL: https://mpra.ub.uni-muenchen.de/39226/1/MPRA_paper_39226.pdf
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    References listed on IDEAS

    as
    1. Léopold Simar, 2007. "How to improve the performances of DEA/FDH estimators in the presence of noise?," Journal of Productivity Analysis, Springer, vol. 28(3), pages 183-201, December.
    2. 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.
    3. Léopold Simar & Paul W. Wilson, 1998. "Sensitivity Analysis of Efficiency Scores: How to Bootstrap in Nonparametric Frontier Models," Management Science, INFORMS, vol. 44(1), pages 49-61, January.
    4. Perelman, Sergio & Santín, Daniel, 2009. "How to generate regularly behaved production data? A Monte Carlo experimentation on DEA scale efficiency measurement," European Journal of Operational Research, Elsevier, vol. 199(1), pages 303-310, November.
    5. H. Sherman & Joe Zhu, 2006. "Benchmarking with quality-adjusted DEA (Q-DEA) to seek lower-cost high-quality service: Evidence from a U.S.bank application," Annals of Operations Research, Springer, vol. 145(1), pages 301-319, July.
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    More about this item

    Keywords

    Data envelopment analysis; Data generation process; Random data; Bootstrap; Bias correction; Efficiency;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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