Technological change and efficiency in the presence of quasi-fixed inputs: A data envelopment analysis application to the hospital sector

Quasi-fixed inputs are present in virtually all sectors of the economy and cannot be adjusted to their optimal value even in the long-run. This constraint must be incorporated in models to correctly measure efficiency and technological change. Assuming that all inputs can be freely and instantly set to their optimal level overestimates firms/sectors/countries' capacity to adjust, biases results, and weakens DEA method as a working tool for managers. We propose a modified DEA approach introducing quasi-fixed inputs and apply the method to hospital emergency services in Montreal to show that such limitations can be lifted.