A Comment on Decomposition of Efficiency in Network Production Models

Antonio Peyrache (a.peyrache@uq.edu.au) and Maria Silva
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Antonio Peyrache: School of Economics and Centre for Efficiency and Productivity Analysis (CEPA) at The University of Queensland, Australia

No WP072022, CEPA Working Papers Series from University of Queensland, School of Economics

Abstract: Kao (2012) proposed a method to decompose DMU efficiency into sub-unit efficiencies for parallel production systems. We provide a numerical example showing that the proposed method can yield negative sub-unit efficiency scores under variable returns to scale, against common sense and standard postulates requiring this score to be non-negative. As a solution, we propose a decomposition based on the directional distance function that does not suffer from this problem and can be also applied to non-convex technologies, therefore providing a more general method to implement such a decomposition. Given the connection between the directional distance function and slack-based efficiency measurement, the method can easily be extended to this case as well.

Keywords: DEA; FDH; Networks; Directional Distance Function; Inefficiency (search for similar items in EconPapers)
JEL-codes: C1 C3 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-dem and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:qld:uqcepa:179

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