Data Sharpening for improving CLT approximations for DEA-type efficiency estimators

Bao Hoang Nguyen, Leopold Simar and Valentin Zelenyuk
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Bao Hoang Nguyen: School of Economics, University of Queensland, Brisbane, Qld 4072, Australia

No WP142021, CEPA Working Papers Series from University of Queensland, School of Economics

Abstract: Asymptotic statistical inference on productivity and production efficiency, using nonparametric envelopment estimators, is now available thanks to the basic central limit theorems (CLTs) developed in Kneip et al. (2015). They provide asymptotic distributions of averages of Data Envelopment Analysis (DEA) and Free Disposal Hull (FDH) estimators of production efficiency. As shown in their Monte-Carlo experiments, due to the curse of dimensionality, the accuracy of the normal approximation is disappointing when the sample size is not large enough. Simar & Zelenyuk (2020) have suggested a simple way to improve the approximation by using a more appropriate estimator of the variances. In this paper we suggest another way to improve the approximation, by smoothing out the spurious values of efficiency estimates when they are in a neighborhood of 1. This results in sharpening the data for observations near the estimated efficient frontier. The method is very easy to implement and does not require more computations than the original method. We compare our approach using Monte-Carlo experiments, both with the basic method and with the improved method suggested in Simar & Zelenyuk (2020) and in both cases we observe significant improvements. We show also that the Simar & Zelenyuk (2020) idea can also be adapted to our sharpening method, bringing additional improvements. We illustrate the method with some real data sets.

Keywords: Data Envelopment Analysis (DEA); Free Disposal Hull (FDH); Production Efficiency; Statistical Inference (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-cwa, nep-ecm, nep-eff and nep-ore
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Working Paper: Data sharpening for improving CLT approximations for DEA-type efficiency estimators (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uqcepa:168

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