Measuring potential sub-unit efficiency to counter the aggregation bias in benchmarking

Heinz Ahn (), Peter Bogetoft and Ana Lopes ()
Additional contact information
Heinz Ahn: Technische Universität Braunschweig
Ana Lopes: Universidade Federal de Minas Gerais

Journal of Business Economics, 2019, vol. 89, issue 1, No 3, 53-77

Abstract: Abstract The paper deals with benchmarking cases where highly aggregated decision making units are in the data set. It is shown that these units—consisting of sub-units which are not further known by the evaluator—are likely to receive an unjustifiable harsh evaluation, here referred to as aggregation bias. To counter this bias, we present an approach which allows to calculate the potential sub-unit efficiency of a decision making unit by taking into account the possible impact of its sub-units’ aggregation without having disaggregated sub-unit data. Based on data envelopment analysis, the approach is operationalized in several ways. Finally, we apply our method to the benchmarking model actually used by the Brazilian Electricity Regulator to measure the cost efficiency of the Brazilian distribution system operators. For this case, our results reveal that the potential effect of the aggregation bias on the operators’ efficiency scores is enormous.

Keywords: Benchmarking; Data envelopment analysis; DEA; Aggregation bias; Potential sub-unit efficiency; Regulation (search for similar items in EconPapers)
JEL-codes: C14 C61 C67 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s11573-018-0901-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:jbecon:v:89:y:2019:i:1:d:10.1007_s11573-018-0901-0

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/11573

DOI: 10.1007/s11573-018-0901-0

Access Statistics for this article

Journal of Business Economics is currently edited by Günter Fandel

More articles in Journal of Business Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().