Technical efficiency bias in data envelopment analysis caused by intra-output aggregation

Abstract

We show that an organization's technical efficiency scores are biased downward by linear aggregation of the quantities of the same type of output that are produced by multiple subunits (intra-output aggregation). We expand the models of Färe et al. (2002, 2004) and Barnum and Gleason (2005) to account for intra-output aggregation bias, yielding an expanded model in which technical efficiency is unbiased by any type of input or output aggregation. We illustrate intra-output aggregation bias with data envelopment analysis results from Canadian paratransit operations.

Acknowledgement

We thank Brendon Hemily, PhD, transit consultant and former Manager of Research and Technical Services for the Canadian Urban Transit Association, for significant assistance and insights into paratransit operations and accounting. Any misinterpretations of his counsel are our responsibility.