Opening the 'black box' of efficiency measurement: input allocation in multi-output settings

Laurens Cherchye, Bram De Rock, Bart Dierynck, Filip Roodhooft and Jeroen Sabbe ()

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: We develop a new Data Envelopment Analysis (DEA)-based methodology for measuring the efficiency of Decision Making Units (DMUs) characterized by multiple inputs and multiple outputs. The distinguishing feature of our method is that it explicitly includes information about output-specific inputs and joint inputs in the efficiency evaluation. This contributes to opening the „black box? of efficiency measurement in two different ways. First, including information on the input allocation substantially increases the discriminatory power of the efficiency measurement. Second, it allows to decompose the efficiency value of a DMU into output-specific efficiency values which facilitates the identification of the outputs the manager should focus on to remedy the observed inefficiency. We demonstrate the usefulness and managerial implications of our methodology by means of a unique dataset collected from the Activity Based Costing (ABC) system of a large service company with 290 DMUs.

Date: 2011-05
New Economics Papers: this item is included in nep-eff
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Related works:
Journal Article: Opening the “Black Box” of Efficiency Measurement: Input Allocation in Multioutput Settings (2013)
Working Paper: Opening the Black Box of Efficiency Measurement: Input Allocation in Multi-Output Settings (2013)
Working Paper: Opening the ‘Black box’ of efficiency measurement: Input allocation in Multi-output settings (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces11.10

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