Biases in technical efficiency scores caused by intra-input aggregation: mathematical analysis and a DEA application using simulated data

Darold Barnum and John Gleason

Applied Economics, 2006, vol. 38, issue 14, 1593-1603

Abstract: In Data Envelopment Analysis (DEA) applications involving multiple inputs and outputs, inputs are aggregated into the total amounts of each type of input. For example, if input types 'labour' and 'capital' are used to produce multiple outputs, the total amount of labour used to produce all outputs is treated as one aggregated input and the total amount of capital as another. Resources are not disaggregated into input variables measuring the amount of labour used to produce the first output, the amount of labour used to produce the second output, the amount of labour used to produce the third output and so on, for both labour and capital. It is shown that such intra-input aggregation causes downward bias in reported technical efficiency scores, with variations in bias unrelated to true technical efficiency. Therefore, with few exceptions, any technical efficiency comparisons among DMUs are invalid. The presence of intra-input aggregation bias is demonstrated mathematically, simulation is used to exhibit its severity, and the exceptions that permit intra-input aggregation without causing bias are identified. It is concluded that, for multiple-input, multiple-output DEA applications, inputs must be disaggregated into the amounts used to produce each output in order to validly report technical efficiency, unless one of the exceptions is present.

Date: 2006
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840500405714 (text/html)
Access to full text is restricted to subscribers.

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:taf:applec:v:38:y:2006:i:14:p:1593-1603

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840500405714

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().