Incentive efficient production frontiers: An agency perspective on DEA

This paper examines how empirical production frontiers may contribute to the incentives of production units. It considers a series of Data Envelopment Analysis (DEA) frontiers, and shows when these may be incentive efficient in the sense that they contain all the information that are relevant for optimal incentive provision. The frontiers considered include the so-called constant, decreasing and varying return to scale models, the free disposability and the free replicability models, as well as the increasing and decreasing return to scale models based on a relaxed set of assumptions. The paper also illustrates how to design optimal incentive schemes based on such frontiers.