Accounting for environmental effects and statistical noise in data envelopment analysis

Fried, H. O, Lovell, C. A. K., Schmidt, S. S. and Yaisawarng, S. (2002) Accounting for environmental effects and statistical noise in data envelopment analysis. Journal of Productivity Analysis, 17 1-2: 157-174. doi:10.1023/A:1013548723393

Author Fried, H. O
Lovell, C. A. K.
Schmidt, S. S.
Yaisawarng, S.
Title Accounting for environmental effects and statistical noise in data envelopment analysis
Journal name Journal of Productivity Analysis   Check publisher's open access policy
ISSN 0895-562X
Publication date 2002-01
Sub-type Article (original research)
DOI 10.1023/A:1013548723393
Volume 17
Issue 1-2
Start page 157
End page 174
Total pages 18
Editor Robin C. Sickles
Place of publication United States
Publisher Springer New York LLC
Language eng
Subject 15 Commerce, Management, Tourism and Services
1501 Accounting, Auditing and Accountability
Abstract In this paper we propose a new technique for incorporating environmental effects and statistical noise into a producer performance evaluation based on data envelopment analysis (DEA). The technique involves a three-stage analysis. In the first stage, DEA is applied to outputs and inputs only, to obtain initial measures of producer performance. In the second stage, stochastic frontier analysis (SFA) is used to regress first stage performance measures against a set of environmental variables. This provides, for each input or output (depending on the orientation of the first stage DEA model), a three-way decomposition of the variation in performance into a part attributable to environmental effects, a part attributable to managerial inefficiency, and a part attributable to statistical noise. In the third stage, either inputs or outputs (again depending on the orientation of the first stage DEA model) are adjusted to account for the impact of the environmental effects and the statistical noise uncovered in the second stage, and DEA is used to re-evaluate producer performance. Throughout the analysis emphasis is placed on slacks, rather than on radial efficiency scores, as appropriate measures of producer performance. An application to nursing homes is provided to illustrate the power of the three-stage methodology.
Keyword Environmental effects
Managerial inefficiency
Statistical noise
Stochastic frontier analysis (SFA)
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Journal Article
Sub-type: Article (original research)
Collections: Faculty of Business, Economics and Law -- Publications
Excellence in Research Australia (ERA) - Collection
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Citation counts: TR Web of Science Citation Count  Cited 158 times in Thomson Reuters Web of Science Article | Citations
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Created: Mon, 25 Jan 2010, 12:15:29 EST by Rosalind Blair on behalf of Faculty of Business, Economics & Law