Randomizing Efficiency Scores in DEA Using Beta Distribution: An Alternative View of Stochastic DEA and Fuzzy DEA

Parakramaweera Sunil Dharmapala
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Parakramaweera Sunil Dharmapala: Department of Operations Management and Business Statistics, Sultan Qaboos University, Muscat, Oman

International Journal of Business Analytics (IJBAN), 2014, vol. 1, issue 4, 1-15

Abstract: Data Envelopment Analysis (DEA) has come under criticism that it is capable of handling only the deterministic input/output data, and therefore, efficiency scores reported by DEA may not be realistic when the data contain random error. Several researchers in the past have addressed this issue by proposing Stochastic DEA models. Some others, citing imprecise data, have proposed Fuzzy DEA models. This paper proposes a method to randomize efficiency scores in DEA by treating each score as an ‘order statistic' that follows a Beta distribution, and it uses Thompson et al.'s (1996) DEA model appended with Assurance Regions (AR) randomized by our “uniform sampling”. In an application to a set of banks, the work demonstrates the randomization and derives some statistical results.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:igg:jban00:v:1:y:2014:i:4:p:1-15

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