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Investment and dynamic DEA

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  • Pierre Ouellette
  • Li Yan

Abstract

A dynamic version of Data Envelopment Analysis (DEA) is developed in the present paper. Our model introduces investment in traditional DEA and imposes intertemporal cost minimization. Adding an intertemporal adjustment constraint into the cost minimization problem, we derive the relation between the DEA variables of the cost function and those of the primary production frontiers’ coefficients. The augmented DEA model can be solved using standard linear programming. This dynamic framework enables computing the production frontiers, measuring the productive efficiencies and evaluating the potential economies all in the presence of adjustment costs.
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Suggested Citation

  • Pierre Ouellette & Li Yan, 2008. "Investment and dynamic DEA," Journal of Productivity Analysis, Springer, vol. 29(3), pages 235-247, June.
    • Handle: RePEc:kap:jproda:v:29:y:2008:i:3:p:235-247
    DOI: 10.1007/s11123-007-0079-x
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    References listed on IDEAS

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    1. Elvira Silva & Spiro E. Stefanou, 2007. "Dynamic Efficiency Measurement: Theory and Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 398-419.
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    5. F R Førsund & L Hjalmarsson, 2004. "Calculating scale elasticity in DEA models," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 55(10), pages 1023-1038, October.
    6. Nemoto, Jiro & Goto, Mika, 1999. "Dynamic data envelopment analysis: modeling intertemporal behavior of a firm in the presence of productive inefficiencies," Economics Letters, Elsevier, vol. 64(1), pages 51-56, July.
    7. Pierre Lasserre & Pierre Ouellette, 1999. "Dynamic Factor Demands and Technology Measurement under Arbitrary Expectations," Journal of Productivity Analysis, Springer, vol. 11(3), pages 219-241, June.
    8. Rajiv D. Banker & Richard C. Morey, 1986. "Efficiency Analysis for Exogenously Fixed Inputs and Outputs," Operations Research, INFORMS, vol. 34(4), pages 513-521, August.
    9. Pierre Ouellette & Stéphane Vigeant, 2000. "A General Procedure to Recover the Marginal Products of a Cost Minimizing Firm," Journal of Productivity Analysis, Springer, vol. 14(2), pages 143-162, September.
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    Cited by:

    1. Kao, Chiang, 2013. "Dynamic data envelopment analysis: A relational analysis," European Journal of Operational Research, Elsevier, vol. 227(2), pages 325-330.
    2. Kao, Chiang, 2014. "Network data envelopment analysis: A review," European Journal of Operational Research, Elsevier, vol. 239(1), pages 1-16.
    3. Pointon, Charlotte & Matthews, Kent, 2016. "Dynamic efficiency in the English and Welsh water and sewerage industry," Omega, Elsevier, vol. 58(C), pages 86-96.
    4. Pierre Ouellette & Valérie Vierstraete, 2010. "Malmquist indexes with quasi-fixed inputs: an application to school districts in Québec," Annals of Operations Research, Springer, vol. 173(1), pages 57-76, January.
    5. Sahoo, Biresh K & Khoveyni, Mohammad & Eslami, Robabeh & Chaudhury, Pradipta, 2016. "Returns to scale and most productive scale size in DEA with negative data," European Journal of Operational Research, Elsevier, vol. 255(2), pages 545-558.
    6. Cherchye, Laurens & De Rock, Bram & Kerstens, Pieter Jan, 2018. "Production with storable and durable inputs: Nonparametric analysis of intertemporal efficiency," European Journal of Operational Research, Elsevier, vol. 270(2), pages 498-513.
    7. Jean Joseph Minviel & Timo Sipiläinen, 2018. "Dynamic stochastic analysis of the farm subsidy-efficiency link: evidence from France," Journal of Productivity Analysis, Springer, vol. 50(1), pages 41-54, October.
    8. Zhu, Liyun & Schneider, Kevin & Oude Lansink, Alfons, 2023. "Economic, environmental, and social inefficiency assessment of Dutch dairy farms based on the dynamic by-production model," European Journal of Operational Research, Elsevier, vol. 311(3), pages 1134-1145.
    9. Guo, Xiaoying & Lu, Ching-Cheng & Lee, Jen-Hui & Chiu, Yung-Ho, 2017. "Applying the dynamic DEA model to evaluate the energy efficiency of OECD countries and China," Energy, Elsevier, vol. 134(C), pages 392-399.
    10. Ching-Cheng Lu & Liang-Chun Lu, 2019. "Evaluating the energy efficiency of European Union countries: The dynamic data envelopment analysis," Energy & Environment, , vol. 30(1), pages 27-43, February.
    11. Frederic Ang & Pieter Jan Kerstens, 2023. "Robust nonparametric analysis of dynamic profits, prices and productivity: An application to French meat-processing firms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 50(2), pages 771-809.
    12. Huettel, Silke & Narayana, Rashmi & Odening, Martin, 2011. "Measuring dynamic efficiency under uncertainty," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 129062, Humboldt University Berlin, Department of Agricultural Economics.
    13. Frederic Ang & Alfons Oude Lansink, 2018. "Decomposing dynamic profit inefficiency of Belgian dairy farms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(1), pages 81-99.
    14. Silva, Elvira & Magalhães, Manuela, 2023. "Environmental efficiency, irreversibility and the shadow price of emissions," European Journal of Operational Research, Elsevier, vol. 306(2), pages 955-967.
    15. Silva, Elvira & Lansink, Alfons Oude & Stefanou, Spiro E., 2015. "The adjustment-cost model of the firm: Duality and productive efficiency," International Journal of Production Economics, Elsevier, vol. 168(C), pages 245-256.
    16. Pointon, Charlotte & Matthews, Kent, 2016. "Reprint of: Dynamic efficiency in the English and Welsh water and sewerage industry," Omega, Elsevier, vol. 60(C), pages 98-108.
    17. Elvira Silva & Alfons Oude Lansink, 2013. "Dynamic Efficiency Measurement: A Directional Distance Function Approach," CEF.UP Working Papers 1307, Universidade do Porto, Faculdade de Economia do Porto.

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    More about this item

    Keywords

    Adjustment cost; Data envelopment analysis; Efficiency; Multiple outputs/inputs; Quasi-fixed inputs; D24; L23;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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