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Selective strong and weak disposability in efficiency analysis

Mahmood Mehdiloo and Victor V. Podinovski

European Journal of Operational Research, 2019, vol. 276, issue 3, 1154-1169

Abstract: The conventional constant and variable returns-to-scale models of data envelopment analysis (DEA) incorporate the assumption of strong, or free, disposability. According to this assumption, each input can be increased and each output can be reduced independently of the other measures. In this paper we argue that this assumption may not be suitable in applications in which some inputs or outputs are closely related to each other. Assuming strong disposability of such closely related measures may lead to unrealistic input and output profiles, and result in meaningless efficiency scores. Examples include inputs and outputs that are strongly correlated, represent overlapping measures or situations in which one measure is a subset of another. In this paper we develop production technologies that allow the specification of groups of closely related inputs and outputs which are only jointly weakly disposable. This assumption does not change the existing proportions between the closely related measures in the same group. We demonstrate the usefulness of the suggested approach by computational experiments.

Keywords: Data envelopment analysis; Production technology; Weak disposability; Efficiency; Closely related measures (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:ejores:v:276:y:2019:i:3:p:1154-1169