Meta-Data Envelopment Analysis: Finding a Direction Towards Marginal Profit Maximization

29 Pages Posted: 19 Jul 2013

See all articles by Chia-Yen Lee

Chia-Yen Lee

National Cheng Kung University

Date Written: July 18, 2013

Abstract

This paper discusses a new meta-DEA approach to solve the problem of choosing direction vectors when estimating the directional distance function. The proposed model emphasizes finding the “direction” for productivity improvement rather than estimating the “score” of efficiency; focusing on “planning” over “evaluation”. In fact, the direction towards marginal profit maximization implies a step-by-step improvement and “wait-and-see” decision process, which is more consistent with the practical decision-making process. An empirical study of U.S. coal-fired power plants operating in 2011 validates the proposed model. The results show that the efficiency measure using the proposed direction is consistent with all other indices with the exception of the direction towards the profit-maximized benchmark. We conclude that the marginal profit maximization is a useful guide for determining direction in the directional distance function.

Keywords: data envelopment analysis, directional distance function, marginal profit maximization, directional marginal productivity, coal-fired power plant

JEL Classification: C14, D24, Q53

Suggested Citation

Lee, Chia-Yen, Meta-Data Envelopment Analysis: Finding a Direction Towards Marginal Profit Maximization (July 18, 2013). Available at SSRN: https://ssrn.com/abstract=2295739 or http://dx.doi.org/10.2139/ssrn.2295739

Chia-Yen Lee (Contact Author)

National Cheng Kung University ( email )

No.1, University Road
Tainan
Taiwan

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