A generalized directional distance function in data envelopment analysis and its application to a cross-country measurement of health efficiency

Gang Cheng and Panagiotis Zervopoulos

MPRA Paper from University Library of Munich, Germany

Abstract: Economic activity produces not only desirable outputs but also undesirable outputs that are usually called negative externalities in economic theory. Negative externalities are usually omitted from efficiency assessments (i.e., applications of Data Envelopment Analysis) which fail to express the true production process. In the present paper we develop a generalized directional distance function method for handling asymmetrically both desirable and undesirable outputs in the assessment process. Unlike the existing directional distance function-based approaches, the proposed method is units-invariant even in case assumptions for the direction vectors are relaxed. The new method is applied to data from national health systems of 160 countries. Desirable and undesirable outputs are incorporated to obtain a clear view of the efficiency status of the national health systems.

Keywords: Data envelopment analysis; Directional distance function; Undesirable outputs; Units-invariant; Health systems (search for similar items in EconPapers)
JEL-codes: C02 C61 D24 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-eff
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