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Additive decomposition in two-stage DEA: An alternative approach

  • Despotis, Dimitrs
  • Koronakos, Gregory
  • Sotiros, Dimitris
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    Typically, a two-stage production process assumes that the first stage transforms external inputs to a number of intermediate measures, which then are used as inputs to the second stage that produces the final outputs. The three fundamental approaches to efficiency assessment in the context of DEA (two-stage DEA) are the simple (or independent), the multiplicative and the additive. The simple approach does not assume any relationship between the two stages and estimates the overall efficiency and the individual efficiencies for the two stages independently with typical DEA models. The other two approaches assume a series relationship between the two stages and differ in the way they conceptualize the decomposition of the overall efficiency to the efficiencies of the individual stages. This paper presents an alternative approach to additive efficiency decomposition in two-stage DEA. We show that when using the intermediate measures as pivot, it is possible to aggregate the efficiency assessment models of the two individual stages in a single linear program. We test our models with data sets taken from previous studies and we compare the results with those reported in the literature.

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    File URL: http://mpra.ub.uni-muenchen.de/41724/1/MPRA_paper_41724.pdf
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    File URL: http://mpra.ub.uni-muenchen.de/44785/1/MPRA_paper_41724.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41724.

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    Date of creation: 13 Jul 2012
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    Handle: RePEc:pra:mprapa:41724
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    1. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    2. Kao, Chiang & Hwang, Shiuh-Nan, 2008. "Efficiency decomposition in two-stage data envelopment analysis: An application to non-life insurance companies in Taiwan," European Journal of Operational Research, Elsevier, vol. 185(1), pages 418-429, February.
    3. Chen, Yao & Cook, Wade D. & Li, Ning & Zhu, Joe, 2009. "Additive efficiency decomposition in two-stage DEA," European Journal of Operational Research, Elsevier, vol. 196(3), pages 1170-1176, August.
    4. Lawrence M. Seiford & Joe Zhu, 1999. "Profitability and Marketability of the Top 55 U.S. Commercial Banks," Management Science, INFORMS, vol. 45(9), pages 1270-1288, September.
    5. 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.
    6. Kao, Chiang & Hwang, Shiuh-Nan, 2011. "Decomposition of technical and scale efficiencies in two-stage production systems," European Journal of Operational Research, Elsevier, vol. 211(3), pages 515-519, June.
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