Estimating data envelopment analysis technical and allocative inefficiency using aggregate cost or revenue data

Estimating data envelopment analysis technical and allocative inefficiency using aggregate cost or revenue data

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Article ID: iaor2008322
Country: Netherlands
Volume: 27
Issue: 2
Start Page Number: 115
End Page Number: 121
Publication Date: Apr 2007
Journal: Journal of Productivity Analysis
Authors: , ,
Keywords: statistics: data envelopment analysis
Abstract:

In this paper, we address the question of Data Envelopment Analysis (DEA) evaluation of efficiency when aggregate cost or revenue data must be used. We show that the DEA technical inefficiency measure using total revenues as the single output variable or total costs as the single input variable equals the aggregate technical and allocative inefficiency. We employ this result to estimate allocative inefficiency and construct statistical tests of the null hypothesis of no allocative inefficiency analogous to those of the null hypothesis of no scale inefficiency. We illustrate our method using revenue and personnel data for the top U.S. public accounting firms over 1995–1998. Our empirical results indicate the existence of statistically significant allocative inefficiency in the public accounting industry.

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