Introducing a new DEA methodology for environmental inputs

Abstract

Data envelopment analysis or DEA is a standard methodology for assessing technical efficiency. In many DEA applications, e.g. in the case of schools or hospitals, the issue arises of calculating efficiency in the presence of nondiscretionary/environmental inputs. We propose a three-stage DEA model to address the environmental input issue, and we provide a simulation analysis that illustrates the implementation and potential advantages of our approach relative to the leading existing multi-stage model of nondiscretionary inputs.

Keywords:

• efficiency measurement
• data envelopment analysis
• environmental inputs

JEL Classification:

• C61

Acknowledgements

Professors Gronberg and Jansen thank The Private Enterprise Research Center at Texas A&M University for financial support for this research.

Notes

¹ Examples of applied DEA studies include Ray (1991), Valdmanis (1992), Kooreman (1994), Ruggiero (1996), Ruggiero and Vitaliano (1999), Johnes (2006), Pilyavsky et al. (2006), McEachern and Paradi (2007), Denizer et al. (2007), Hollingsworth (2008), Agasisti (2011), Burney et al. (2011).

² If z_l is favourable, we could replace it with a series of Max_j (z_lj) – z_lj before solving the optimization problem in this stage.