Do efficiency scores depend on input mix? A statistical test and empirical illustration

Mette Asmild (), Jens Hougaard () and Dorte Kronborg
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Mette Asmild: Warwick Business School, University of Warwick
Dorte Kronborg: Department of Finance, Copenhagen Business School

No 05_2012, MSAP Working Paper Series from University of Copenhagen, Department of Food and Resource Economics

Abstract: In this paper we examine the possibility of using the standard Kruskal-Wallis rank test in order to evaluate whether the distribution of efficiency scores resulting from Data Envelopment Analysis (DEA) is independent of the input (or output) mix. Recently, a general data generating process (DGP) suiting the DEA methodology has been formulated and some asymptotic properties of the DEA estimators have been established. In line with this generally accepted DGP, we formulate a conditional test for the assumption of mix independence. Since the DEA frontier is estimated, many standard assumptions for evaluating the test statistic are violated. Therefore, we propose to explore its statistical properties by the use of simulation studies. The simulations are performed conditional on the observed input mixes. The method, as it is shown here, is applicable when comparing distributions of efficiency scores in two or more groups in models with multiple inputs and one output with constant returns to scale. The approach is illustrated in an empirical case of demolition projects where we reject the assumption of mix independence. This means that it, in this case, is not meaningful to perform a complete ranking of the projects based on their efficiency scores. Thus the example illustrates how common practice can be inappropriate.

Keywords: Data Envelopment Analysis (DEA); homogeneous efficiencies; small sample properties; Kruskal-Wallis; ranking; demolition projects (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012
New Economics Papers: this item is included in nep-ecm, nep-eff and nep-ppm
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Related works:
Journal Article: Do efficiency scores depend on input mix? A statistical test and empirical illustration (2013)
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