Decomposing technical efficiency and scale elasticity in two-stage network DEA

Biresh Sahoo (), Joe Zhu, Kaoru Tone and Bernhard M. Klemen

European Journal of Operational Research, 2014, vol. 233, issue 3, 584-594

Abstract: The constant returns to scale assumption maintained by neoclassical theorists for justifying the black-box structure of production technology in long run does not necessarily allow one to infer that there are no scale benefits available in its sub-technologies. Most of real-life production technologies are multi-stage in nature, and the sources of increasing returns lie in the sub-technologies. It is, therefore, imperative to estimate the scale economies of a firm not only for the network technology but also for the sub-technologies. To accomplish this, two approaches are suggested in this contribution, based on the premise concerning whether a network technology construct considers allocative inefficiency. The first approach, which is ours, makes use of a single network technology for two interdependent sub-technologies. The second approach, which is due to Kao and Hwang (2011), however, assumes complete allocative efficiency by considering two independent sub-technology frontiers, one for each sub-technology. The distinction between these two approaches is important from a policy point of view since the network efficiencies revealed from these two approaches have distinctive causative factors that do not permit them to be used interchangeably.

Keywords: Data envelopment analysis; Network DEA; Returns to scale; Scale elasticity decomposition; Technical efficiency decomposition (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:233:y:2014:i:3:p:584-594

DOI: 10.1016/j.ejor.2013.09.046

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