Measuring Technical Efficiency in Data Envelopment Analysis

Abstract

In this study an attempt is made to examine, using data envelopment analysis, the productivity trends in the Indian Pig Iron and Sponge Iron industry for the period after economic liberalization. The methods of cross-efficiency matrix, distribution of virtual inputs and returns to scale are also used to get further insights into the performances of the individual units. The results show that the there has been declining efficiency trend since 1996 which could be taken as the evidence of rapid capacity addition in the early 1990s coupled with the recession in the steel sector. Though our DEA results on peer group and target provide limited information as to how performance can be improved through on-site inspection of operations these are not robust in the sense that some of the peers identified are not real peers. However, the results on cross efficiency matrix and the distribution of virtual inputs provide information concerning not only the real peers but also their truly efficient operating practices where there is high probability that both efficient as well as inefficient companies would improve upon.

Keywords: DEA, Technical efficiency, Peer group, Cross-efficiency matrix, Distribution of virtual inputs

JEL Classification: D24, C61