Scandinavian Working Papers in Economics

Discussion Papers on Economics,
University of Southern Denmark, Department of Economics

No 2/2012: Maintaining the Regular Ultra Passum Law in data envelopment analysis

Ole B. Olesen () and John Ruggiero ()
Additional contact information
Ole B. Olesen: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
John Ruggiero: School of Business Administration, Postal: University of Dayton, Dayton, Ohio 45469-2251, USA

Abstract: The variable returns to scale data envelopment analysis (DEA) model is developed with a maintained hypothesis of convexity in input-output space. This hypothesis is not consistent with standard microeconomic production theory that posits an S-shape for the production frontier, i.e. for production technologies that obey the Regular Ultra Passum Law. Consequently, measures of technical efficiency assuming convexity are biased downward. In this paper, we provide a more general DEA model that allows the S-shape.

Keywords: Data envelopment analysis; homothetic production; S-shaped production function; non-convex production set

JEL-codes: C00; C40; C60

22 pages, January 4, 2012

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