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What is Efficient DMU

Encyclopedia of Business Analytics and Optimization
A DMU with maximum Z-score 1, provided that all input and output slacks in the optimal solution (in CCR/AR or BCC/AR model) are zero. (If max Z < 1, the DMU is inefficient).
Published in Chapter:
Randomizing DEA Efficiency Scores with Beta Distribution
P. Sunil Dharmapala (College of Economics & Political Science, Sultan Qaboos University, Sultanate of Oman)
Copyright: © 2014 |Pages: 9
DOI: 10.4018/978-1-4666-5202-6.ch178
Abstract
A criticism leveled against Data Envelopment Analysis (DEA) is that it is incapable of handling input/output data contaminated with random errors, and therefore, efficiency scores reported by DEA do not reflect reality. Several researchers have addressed this issue by incorporating statistical noise into DEA modeling, thus giving birth to Stochastic DEA. In this chapter, utilizing well known DEA models, we propose a method to randomize efficiency scores by treating each score as an order statistic of an underlying Beta distribution. In an application to a set of banks, we demonstrate how to do this randomization and derive some statistical results.
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More Results
Nonlinear Efficiency in DEA Relative to “Ideal Reference”
A DMU with maximum Z-score 1, provided that all input and output slacks in the optimal solution (in TT/LC-AR, CCR/AR or BCC/AR model) are zero. (If max Z < 1, the DMU is inefficient).
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Performance Measurement: From DEA to MOLP
An efficient DMU is one located on the efficient frontier.
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