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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Variable returns to scale

If it is suspected that an increase in inputs does not result in a proportional change in the outputs, a model which allows variable returns to scale (VRS) such as the BCC model should be considered.

Technology/Production technology

The operational practices (a combination of the management and engineering knowledge) that determine how a DMU’s inputs are transformed into outputs.

Pareto-efficiency/Pareto-Koopmans efficiency:

Simply stated, a unit is Pareto-efficient when an attempt to improve on any of its inputs or outputs will adversely affect some other inputs or outputs. Formally, Chames et al (1981) consider a DMU to be 100% efficient only when ‘none of its inputs can be decreased without either (i) decreasing some of its outputs, …

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Weights

These are the unknowns in the primal model that determine the importance attributed to each factor. Since the value assigned to each weight depends on the measurement scale of the factor itself, it is difficult to compare the weights from different factors.

Technical efficiency

An efficiency measure that ignores the impact of scale-size by comparing a DMU only to other units of similar scale. Technical efficiency is computed using the BCC model. Overall efficiency is sometimes referred to as technical efficiency as closely follows the concept of technical efficiency developed by Farrell (1957), which technical efficiency as defined here, …

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Nondiscretionary factor

Same as exogenously fixed factor.

Variable

An input or output factor. Since these are always known beforehand, their values are actually constants.

Piecewise linearity

An efficiency frontier is piecewise linear when the underlying production function is approximated through interconnected linear segments. The basic DEA models are all piecewise linear. See Chames et al (1981) for implications. [Chames A, Cooper W W and Rhodes E (1981), ‘Evaluating program and managerial efficiency: an application of data envelopment analysis to program follow …

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Ratio models

The CCR and BCC models both define efficiency as a ratio of weighted outputs over weighted inputs, hence they are often known as ratio models.

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