Ranking with a Euclidean common set of weights in data envelopment analysis: with application to the Eurozone banking sector

Helmi Hammami, Thanh Ngo, David Tripe and Dinh-Tri Vo
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Helmi Hammami: ESC [Rennes] - ESC Rennes School of Business
David Tripe: Massey University
Dinh-Tri Vo: IPAG Business School

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Abstract: This paper provides a new method to define a Euclidean common set of weights (ECSW) in data development analysis (DEA) that (1) allows ranking both efficient and inefficient firms, (2) is more realistic in terms of determination of weights, and (3) generates rankings for banks consistent with their credit ratings. We first use DEA to determine the efficient frontier and then estimate a common set of weights that can minimize the Euclidean distance between the firms and that frontier. This process is illustrated by a simple numerical example and is extended to a real-life situation using the Eurozone banking sector. Our ECSW approach outperforms other common set of weights approaches in both numerical and real-life examples, and in terms of providing rankings consistent with banks' credit ratings.

Keywords: Data envelopment analysis; Common set of weights; Euclidean distance; Banking system; Eurozone (search for similar items in EconPapers)
Date: 2022-04
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Published in Annals of Operations Research, 2022, 311 (2), pp.675-694. ⟨10.1007/s10479-020-03759-6⟩

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Journal Article: Ranking with a Euclidean common set of weights in data envelopment analysis: with application to the Eurozone banking sector (2022)
Working Paper: Ranking with a Euclidean Common Set of Weights in Data Envelopment Analysis: With Application to the Eurozone Banking Sector (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03699527

DOI: 10.1007/s10479-020-03759-6

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