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The Validity of Input Aggregation in DEA Models: A Statistical Test

Author

Listed:
  • Subhash C. Ray

    (University of Connecticut)

  • Kankana Mukherjee

    (Worcester Polytechnic Institute)

Abstract

We address the problem of input aggregation in DEA models within a broader framework and provide a direct link between input aggregation in DEA on the one hand and the test of parameter restrictions implied by input aggregation in an explicitly specified production function on the other. We show that when input prices vary across firms, the DEA LP problems for measuring efficiency scores of individual firms from the aggregated model have to be appropriately modified. An empirical application of the revised model using data from Indian manufacturing sector reveals that the validity of aggregating production and non-production workers into a composite labor input using Banker's F-test cannot be rejected.

Suggested Citation

  • Subhash C. Ray & Kankana Mukherjee, 2005. "The Validity of Input Aggregation in DEA Models: A Statistical Test," Working papers 2005-54, University of Connecticut, Department of Economics, revised Nov 2006.
  • Handle: RePEc:uct:uconnp:2005-54
    Note: The paper has benefited from comments received from participants at the 2006 INFORMS Annual Meeting.
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-597, May.
    4. Rajiv D. Banker, 1993. "Maximum Likelihood, Consistency and Data Envelopment Analysis: A Statistical Foundation," Management Science, INFORMS, vol. 39(10), pages 1265-1273, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Banker's F-test; data envelopment analysis; input aggregation; parameter restrictions;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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