Measures of global sensitivity in linear programming: applications in banking sector

Mike G. Tsionas () and Dionisis Philippas ()
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Mike G. Tsionas: Montpellier Business School
Dionisis Philippas: ESSCA School of Management

Annals of Operations Research, 2023, vol. 330, issue 1, No 21, 585-607

Abstract: Abstract The paper examines the sensitivity for the solution of linear programming problems using Bayesian techniques, when samples for the coefficients of the objective function are uncertain. When data is available, we estimate the solution of the linear program and provide statistical measures of uncertainty through the posterior distributions of the solution in the light of the data. When data is not available, these techniques examine the sensitivity of the solution to random variation in the coefficients of the linear problem. The new techniques are based on two posteriors emerging from the inequalities of Karush–Kuhn–Tucker conditions. The first posterior is asymptotic and does not require data. The second posterior is finite-sample-based and is used whenever data is available or if random samples can be drawn from the joint distribution of coefficients. A by-product of our framework is a robust solution. We illustrate the new techniques in two empirical applications to the case of uncertain Data Envelopment Analysis efficiency, involving two large samples, of US commercial banks and a sample of European commercial banks regulated by the Single Supervisory Mechanism. We analyse whether some pre-determined criteria, associated with size and new supervisory framework, can adequately affect the solution of linear program. The results provide evidence of substantial improvements in statistical structure with respect to sensitivities and robustification. Our methodology can serve as a consistency check of the statistical inference for the solution of linear programming problems in efficiency under uncertainty in data.

Keywords: Bayesian techniques; Global sensitivity; Data uncertainty; Data envelopment analysis (search for similar items in EconPapers)
JEL-codes: C11 C61 G11 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-021-03980-x

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