A new approach for technical efficiency estimation in multiple output production

A new approach for technical efficiency estimation in multiple output production

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Article ID: iaor20001226
Country: Netherlands
Volume: 111
Issue: 2
Start Page Number: 369
End Page Number: 380
Publication Date: Dec 1998
Journal: European Journal of Operational Research
Authors:
Keywords: statistics: regression
Abstract:

The nonparametric technique of Data Envelopment Analysis (DEA) has been used to measure technical efficiency. This approach has proven useful because, unlike regression analyses, it allows multiple outputs and does not require a priori functional form specification. DEA does, however, require correct model specification; inclusion of inappropriate variables or omission of relevant variables leads to distortions. The purpose of this paper is to develop an alternative methodology based on canonical correlation to measure technical efficiency for multiple output production correspondences. Using simulated data, the new methodology is compared with DEA. The results indicate that the canonical regression approach outperforms DEA in most cases.

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