Target and technical efficiency in DEA: controlling for environmental characteristics |
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Authors: | O B Olesen N C Petersen |
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Institution: | (1) The University of Southern Denmark, Odense, Denmark |
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Abstract: | In this paper we propose a target efficiency DEA model that allows for the inclusion of environmental variables in a one stage model while maintaining a high degree of discrimination
power. The model estimates the impact of managerial and environmental factors on efficiency simultaneously. A decomposition
of the overall technical efficiency into two components, target efficiency and environmental efficiency, is derived. Estimation
of target efficiency scores requires the solution of a single large non-linear optimization problem and provides both a joint
estimation of target efficiency scores from all DMUs and an estimation of a common scalar expressing the environmental impact
on efficiency for each environmental factor. We argue that if the indices on environmental conditions are constructed as the
percentage of output with certain attributes present, then it is reasonable to let all reference DMUs characterized by a composed
fraction lower than the fraction of output possessing the attribute of the evaluated DMU enter as potential dominators. It
is shown that this requirement transforms the cone-ratio constraints on intensity variables in the BM-model (Banker and Morey
1986) into endogenous handicap functions on outputs. Furthermore, a priori information or general agreements on allowable handicap values can be incorporated into
the model along the same lines as specifications of assurance regions in standard DEA.
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Keywords: | Environment Data envelopment analysis Nondiscretionary inputs |
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