Category Archive: Frequently Asked Question

BCC

Introduced by Banker, Chames and Cooper (1984), this model measures technical efficiency as the convexity constraint ensures that the composite unit is of similar scale size as the unit being measured. The resulting efficiency is always at least equal to the one given by the CCR model, and those DMUs with the lowest input or …

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Non-naturally enveloped unit

Bessent et al (1988) coined this term (later simply known as unenveloped units) to refer to those inefficient units that are not fully enveloped by the efficiency frontier. To be fully enveloped in the CCR model, an inefficient DMU needs to have (m+n) -1 reference units where m+n denotes the number of factors. Unenveloped units …

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Outlier

Generally taken to mean an odd unit with an input-output mix that significantly differs from the rest of the units. This can be due to a measurement error, or as a result of the outlier having different operating practices. Outliers that are efficient can introduce bias into the analysis. See Epstein and Henderson (1989). [Epstein …

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Visualisation

The process of developing a set of visual techniques such as graphs and charts through which the DEA results can be better understood.

Scale of operations

The so-called ‘size’ of the DMU, it may be associated with either the inputs or the outputs, depending on the situation.

Scale efficiency

A unit is said to be scale efficient when its size of operations is optimal so that any modifications on its size will render the unit less efficient. The value for scale efficiency is obtained by dividing the aggregate efficiency by the technical efficiency.

Slacks

The additional improvement (increase in outputs and/or decrease in inputs) needed for a unit to become efficient.

Unit isoquant/Isoquant

Yet another name for the efficiency frontier, this term emphasises the fact that each segment of the frontier represents the trade-off possibilities that can be made between the inputs or outputs of a given DMU on the isoquant segment while keeping the DMU efficient.

Productivity

For a single input-output case, the ratio of a unit’s output to its input. Productivity varies according to changes that occur in the production technology, the efficiency of the production process (which can be measured through DEA) and the production environment (Lovell 1993). [Lovel C A K (1993), ‘Productive frontiers and productive efficiency’, in: Fried …

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Production function

Given a set of inputs that produce outputs, the production function defines an optimum relationship for producing the maximal amount of output from the given inputs. The DEA equivalent of the production function is the efficiency frontier which is based on empirical data (inputs and outputs). See Chames et al (1981) for details and more …

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