Model misspecification in Data Envelopment Analysis

Peter Smith

Annals of Operations Research, 1997, vol. 73, issue 0, 233-252

Abstract: The use of Data Envelopment Analysis for estimating comparative efficiency has become widespread, and there has been considerable academic attention paid to the development of variants of the basic DEA model. However, one of the principal weaknesses of DEA is that - unlike statistically based methods - it yields no diagnostics to help the user determine whether or not the chosen model is appropriate. In particular, the choice of inputs and out-puts depends solely on the judgement of the user. The purpose of this paper is to examine the implications for efficiency scores of using a misspecified model. A simple production process is set up. Simulation models are then used to explore the effects of applying misspecified DEA models to this process. The phenomena investigated are: the omission of significant variables; the inclusion of irrelevant variables; and the adoption of an inappropriate variable returns to scale assumption. The robustness of the results is investigated in relation to sample size; variations in the number of inputs; correlation between inputs; and variations in the importance of inputs. The paper concludes that the dangers of misspecification are most serious when simple models are used and sample sizes are small. In such circumstances, it is concluded that it will usually be to the modeller's advantage to err on the side of including possibly irrelevant variables rather than run the risk of excluding a potentially important variable from the model. Copyright Kluwer Academic Publishers 1997

Keywords: Data Envelopment Analysis; model specification; simulation (search for similar items in EconPapers)
Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (69)

Downloads: (external link)
http://hdl.handle.net/10.1023/A:1018981212364 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:73:y:1997:i:0:p:233-252:10.1023/a:1018981212364

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1023/A:1018981212364

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().