Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 30/2012: Identifying Suspicious Efficient Units in DEA Models

Vladimir E. Krivonozhko , Finn R. Førsund () and Andrey V. Lychev
Additional contact information
Vladimir E. Krivonozhko: National University of Science and Technology «MISiS», Postal: Moscow
Finn R. Førsund: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Andrey V. Lychev: National University of Science and Technology «MISiS», Postal: Moscow

Abstract: Applications of the DEA models show that inadequate results may arise in some cases, two of these inadequacies being: a) too many efficient units may appear in some DEA models; b) a DEA model may show an inefficient unit from the point of view of experts as an efficient one. The purpose of this paper is to identify suspicious units that may unduly become efficient. The concept of a terminal unit is introduced for such units. It is shown by establishing theorems how units can be identified as terminal units and how different definitions of suspicious units are related. An approach for improving the adequacy of DEA models based on terminal units is suggested, and an example shown based on a real-life data set for Russian banks.

Keywords: Data Envelopment Analysis (DEA); Terminal units; Efficiency; Weight restrictions; Domination cones

JEL-codes: C44; C61; C67; D24

32 pages, November 7, 2012

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