Undesirable outputs and weighting schemes in composite indicators based on data envelopment analysis

Andreia Zanella, Ana S. Camanho and Teresa G. Dias

European Journal of Operational Research, 2015, vol. 245, issue 2, 517-530

Abstract: This paper discusses different models that can be used to construct composite indicators with both desirable and undesirable output indicators. Two approaches are considered. The first is an indirect approach, based on a traditional Data Envelopment Analysis model, requiring a prior transformation in the measurement scale of the undesirable outputs. The second is a direct approach, based on a directional distance function model. The use of a directional distance function allows for the accommodation of undesirable indicators in their original form. The main limitations of these approaches are discussed related to the data transformation in the case of the indirect approach and the possibility to obtain negative margin rates of substitution between the desirable and undesirable outputs in the case of the direct approach. These issues lead to the proposal of a new composite indicator model based on a directional distance function that overcomes the limitations associated with the existing approaches. The incorporation of information on the relative importance of individual indicators using weight restrictions is discussed. Proposed here is an enhanced formulation of weight restrictions, in the form of assurance regions type I, that reflects the relative importance of the indicators in percentage terms. The models are illustrated in the assessment of Brazilian hydropower plants and are suitable for any assessment involving the aggregation of key performance indicators whenever undesirable outputs are present.

Keywords: Data envelopment analysis; Directional distance function; Composite indicator; Undesirable outputs; Weight restrictions (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (71)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S037722171500243X
Full text for ScienceDirect subscribers only

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:eee:ejores:v:245:y:2015:i:2:p:517-530

DOI: 10.1016/j.ejor.2015.03.036

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().