Introducing microeconomic foundation in DEA: the average-based approach

Vitor Miguel Ribeiro, Celeste Varum and Ana Dias Daniel

Spatial Economic Analysis, 2020, vol. 15, issue 2, 145-164

Abstract: Although recent developments focused on the multi-stage and multilevel data envelopment analysis (DEA) exhibit a high degree of mathematical sophistication, they are also characterized by the absence of a microeconomic foundation. This study proposes a novel approach called average-based DEA, which is conceived to overcome such a concern through the application of the Spence distortion principle to the hierarchy of a system. Theoretical and empirical results demonstrate that the proposed methodology reduces the distortion of efficiency scores observed in alternative multilevel extensions.

Date: 2020
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DOI: 10.1080/17421772.2020.1701701

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