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Interpreting inefficiency ratings: An application of bank branch operating efficiencies
Author(s) -
Haag Stephen E.,
Jaska Patrick V.
Publication year - 1995
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090160103
Subject(s) - inefficiency , data envelopment analysis , stability (learning theory) , set (abstract data type) , rectification , econometrics , computer science , interpretation (philosophy) , efficiency , operations research , economics , mathematics , mathematical optimization , microeconomics , statistics , engineering , electrical engineering , voltage , machine learning , estimator , programming language
Data Envelopment Analysis is an analytical tool for evaluating the relative technical efficiency of a set of organizations with the same multiple inputs and outputs. This paper examines the correct interpretation of inefficiency scores in the Additive model of Data Envelopment Analysis. A contrived numerical example is offered to demonstrate that certain computational statements appearing in recent literature are not entirely correct. As rectification, a region of stability is defined that identifies sufficient conditions for altering a technical inefficiency classification to that of technical efficiency. Finally, this region of stability technique is applied to bank branch operating efficiencies to demonstrate managerial interpretations and policy implications.