Measuring the Efficiency of Two-Stage Production Process in the Presence of Undesirable Outputs

In a production process, desirable outputs and undesirable outputs are often generated simultaneously. However, lots of literature evaluating the efficiency of the industrial process always maximizes the desirable outputs regardless of the disposing of the undesirable outputs, which is improper when the environmental protection gets an increasing of attention. In this paper, we attempt to integrate the goal of maximizing the desirable outputs and that of disposing the undesirable outputs into an evaluation framework. And the generating process of the desirable outputs and the disposing process of the undesirable outputs are modeled as two connected processes, the whole of which is regarded as a two-stage process. Some data envelopment analysis models are proposed to measure the efficiencies of the two-stage process and its sub-processes. Then the example of industrial systems of Chinese administrative regions is used to examine the validity of our models. Based on the analysis of results from the example, we explain the efficiency difference in four Chinese areas and give some policy implications.