Modeling input allocative efficiency via distance and quasi-distance functions

Data envelopment analysis (DEA) is an important analytical tool for estimating the technical efficiency of decision-making units. However, input allocative efficiency is less frequently investigated in the DEA framework because the measure of input allocative efficiency – derived as the ratio of cost efficiency to Farrell input technical efficiency – may be biased because of slack in the constraints that define the technology or because of differences in input prices paid by firms. We extend the DEA methodology by proposing a new measure of input allocative efficiency based on the direct and indirect output quasi-distance functions. An empirical illustration of the new and existing methods for measuring input allocative efficiency is offered for a sample of US banks operating in 1994–95.