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A preference allocation-DFM model in Data Envelopment Analysis -An application to Energy-Environment-Economic efficiency in Japan-

Soushi Suzuki (), Peter Nijkamp and Piet Rietveld

ERSA conference papers from European Regional Science Association

Abstract: Japan is faced with a 'Fukushima' problem, meaning a nuclear accident leading to electrical power shortage. This problem relates to a non-balanced 'Energy-Environment-Economic' policy which does not, but should incorporate 'electrical power saving', 'low carbon emission', and 'economic growth'. Although it is difficult at this stage, it is necessary to make an effort to achieve more balanced and more efficient 'Energy-Environment-Economic' policy in Japan, even if Japan decides to withdraw from the COP (Conference of Parties of United Nations Conventions) 17. A standard tool to judge the efficiency of actors (decision making units) is Data Envelopment Analysis (DEA). The existence of many possible efficiency improvement solutions has in recent years prompted a -rich variety of literature on the methodological integration of the MOLP (Multiple Objective Linear Programming) and the DEA models. In the past years, much progress has been made to extend this approach in several directions. An example is the Distance Friction Minimization (DFM) method. The DFM model is based on a generalized distance friction function and serves to improve the performance of a Decision Making Unit (DMU) by identifying the most appropriate movement towards the efficiency frontier surface. Standard DEA models use a uniform proportional input reduction (or a uniform proportional output increase) in the improvement projections, but the DFM approach aims to enhance efficiency strategies by introducing a weighted projection function. This approach may address both input reduction and output increase as a strategy of a DMU. An advantage of this model is that there is no need to incorporate the value judgment of a decision maker. Nevertheless, in order to achieve efficiency improvement in Japan's 'Energy-Environment-Economic' policy at a regional level, it might be necessary to incorporate a value judgment of a policy maker on political priorities. In our study, we present a newly developed Preference Allocation model in DFM, which is suitable to incorporate a decision maker's value judgment for the allocation of an input reduction and an output augmentation in an efficiency improvement projection. The above-mentioned Preference Allocation model is illustrated on the basis of an application to the efficiency analysis of 'Energy-Environment-Economic' for each prefecture in Japan.

New Economics Papers: this item is included in nep-eff and nep-ene
Date: 2012-10
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