Variables reduction in data envelopment analysis

Abstract

In real applications of data envelopment analysis (DEA), there are a number of pitfalls that could have a major influence on the efficiency. Some of these pitfalls are avoidable and the others remain problematic. One of the most important pitfalls that the researchers confront is the closeness of the number of operational units and the number of inputs and outputs. In performance measurement using DEA, the closeness of these two numbers could yield a large number of efficient units. In this article, some inputs or outputs will be aggregated and the number of inputs and outputs are reduced iteratively. Numerical examples show that in comparison to the single DEA method, our approach has the fewest efficient units. This means that our approach has a superior ability to discriminate the performance of the DMUs.

Keywords:

• data envelopment analysis
• efficiency
• inputs/outputs
• principal component analysis

Acknowledgements

The authors are grateful for the comments and suggestions made by anonymous referees and to the editor Professor Martinez-Legaz for ensuring a timely review process. Any errors and omissions are our own.