Global sub-increasing and global sub-decreasing returns to scale in free disposal hull technologies: Definition, characterization and calculation

Amin Mostafaee and Majid Soleimani-damaneh

European Journal of Operational Research, 2020, vol. 280, issue 1, 230-241

Abstract: Global Returns to Scale (GRS) is an important notion in performance analysis under Free Disposal Hull (FDH) technologies. Ray Average Productivity (RAP) function has a crucial role in interpreting the GRS. We define two new notions, called Global Sub-Increasing RTS (G-SIRS) and Global Sub-Decreasing RTS (G-SDRS), invoking the behaviour of the RAP function at its maximizers. These notions are useful from a managerial standpoint, because they help the decision maker to decide about contracting or expanding the operation of the units under consideration. After presenting a motivating example and defining G-SIRS and G-SDRS, some theorems are proved to characterize these new notions. A polynomial-time algorithm is sketched which is able to determine the GRS of the Decision Making Units (DMUs) under evaluation. The second part of the paper is devoted to calculating a stability interval for GRS. It is done through some theorems and a polynomial-time algorithm. The results of the paper are illustrated by numerical examples as well as empirical studies with real-world data. Computational experiments are reported as well.

Keywords: Data envelopment analysis; FDH technologies; Global RTS; RAP function; Computational experiments (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:280:y:2020:i:1:p:230-241

DOI: 10.1016/j.ejor.2019.07.005

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