A new approach in modelling undesirable output in DEA model

Abstract

With an increasing attention on the environment, one of the major research thrusts in Data Envelopment Analysis (DEA) based performance evaluation is the undesirable output in the conventional DEA model. There is considerable research published on the undesirable aspects of production outputs. However, the economic implications and the suitability of the DEA models for incorporating the undesirable outputs are less carefully investigated and discussed. In this paper, a comparative study is conducted of typical eco-DEA models to illustrate this issue. We propose a ratio model to evaluate the undesirable as well as the desirable outputs simultaneously. We apply the specially developed model to investigate the impact of production pollutants while conducting the efficiency evaluation in the textile industry of China. The results reveal that the production output-oriented efficiency evaluation can be significantly altered once the environmental aspects are factored into the model.

Keywords:

• Data Envelopment Analysis
• undesirable output
• efficiency
• ecological extension
• textile industry

This research is partially supported by the Hong Kong CERG research grant, PolyU 5485/09H.

This research is partially supported by the Hong Kong CERG research grant, PolyU 5485/09H.

Acknowledgements

The authors appreciate the valuable comments and suggestions from the anonymous referees concerning the ratio model. These comments have helped us to further clarify the definitions and descriptions, while leading to improvements in our empirical examples. In particular, the detailed editorial work helped us to polish the paper into this more readable version.