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    Measuring Efficiency under Fixed Proportion Technologies

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    Date
    2011-06
    Author
    Barnum, Darold T.
    Gleason, John M.
    Publisher
    Springer Verlag
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    Abstract
    Data Envelopment Analysis (DEA) applications frequently involve nonsubstitutable inputs and nonsubstitutable outputs (that is, fixed proportion technologies). However, DEA theory requires substitutability. In this paper, we illustrate the consequences of nonsubstitutability on DEA efficiency estimates, and we develop new efficiency indicators that are similar to those of conventional DEA models except that they require nonsubstitutability. Then, using simulated and real-world datasets that encompass fixed proportion technologies, we compare DEA efficiency estimates with those of the new indicators. The examples demonstrate that DEA efficiency estimates are biased when inputs and outputs are nonsubstitutable. The degree of bias varies considerably among Decision Making Units, resulting in substantial differences in efficiency rankings between DEA and the new measures. And, over 90 percent of the units that DEA identifies as efficient are, in truth, not efficient. We conclude that when inputs and outputs are not substituted for either technological or socio-economic/legal reasons, conventional DEA models should be replaced with models that account for nonsubstitutability.
    Subject
    Fixed proportion technology
    Data Envelopment Analysis
    Efficiency measurement
    Nonsubstitutable inputs
    Nonsubstitutable outputs
    Type
    Article
    Date available in INDIGO
    2012-03-02T20:04:57Z
    URI
    http://hdl.handle.net/10027/8153
    Collections
    • Publications - Managerial Studies
    • Publications - Information & Decision Sciences
    • Publications - Pharmacy Administration

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