A free coordination hull approach to efficiency measurement

Superficially, the free disposal hull production possibility set (pps) can be regarded as a binary version of the Banker, Charnes and Cooper pps, in which only one component of the vector, λ, is non-zero and of necessity equal to 1. We therefore propose, by analogy with a pps due originally to Koopmans, a new pps which retains the binary characteristic of the components of λ but permits more than one component to be non-zero. Thus, a given DMU's performance is assessed not only against the individual DMUs included in the sample but also against composite DMUs obtained by simple aggregation. This approach is demonstrated and investigated on a published data set.