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Performance Evaluation in Stochastic Environments Using Mean-Variance Data Envelopment Analysis

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  • Thierry Post

    (Department of Finance and Investment, Erasmus University Rotterdam, 3062 PA Rotterdam, The Netherlands)

Abstract

Traditional Data Envelope Analysis (DEA) neglects uncertainty for the input-output variables by treating the observations as if they were the true input-output variables to select reference units for efficiency estimation and performance benchmarking. In stochastic environments, the traditional framework may include stochastically dominated reference units and exclude stochastically undominated ones. To incorporate uncertainty for the input-output variables in DEA, we propose a mean-variance framework derived from the theory of stochastic dominance. From that framework an extension to the traditional model is derived that prevents the selection of stochastically dominated reference units. In addition, within the mean-variance approach, variance restrictions can be specified that reduce the uncertainty for the performance of the evaluated unit relative to its reference unit.

Suggested Citation

  • Thierry Post, 2001. "Performance Evaluation in Stochastic Environments Using Mean-Variance Data Envelopment Analysis," Operations Research, INFORMS, vol. 49(2), pages 281-292, April.
    • Handle: RePEc:inm:oropre:v:49:y:2001:i:2:p:281-292
    DOI: 10.1287/opre.49.2.281.13529
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    3. P. Beraldi & M. E. Bruni, 2020. "Efficiency evaluation under uncertainty: a stochastic DEA approach," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(2), pages 519-538, December.
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    5. Holger Scheel & Stefan Scholtes, 2003. "Continuity of DEA Efficiency Measures," Operations Research, INFORMS, vol. 51(1), pages 149-159, February.
    6. Chien-Ming Chen & Magali A. Delmas, 2012. "Measuring Eco-Inefficiency: A New Frontier Approach," Operations Research, INFORMS, vol. 60(5), pages 1064-1079, October.
    7. Yeung, Luciana & Azevedo, Paulo Furquim, 2011. "Measuring the Efficiency of Brazilian Courts from 2006 to 2008: What Do the Numbers Tell Us?," Insper Working Papers wpe_251, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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