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Endogenous Common Weights as a Collusive Instrument in Frontier-Based Regulation

In: Advances in Efficiency and Productivity

Author

Listed:
  • Per J. Agrell

    (Universite catholique de Louvain)

  • Peter Bogetoft

    (Copenhagen Business School CBS)

Abstract

Non-parametric efficiency analysis, such as Data Envelopment Analysis (DEA) relies so far on endogenous local or exogenous general weights, based on revealed preferences or market prices. However, as DEA is gaining popularity in regulation and normative budgeting, the strategic interest of the evaluated industry calls for attention. We offer endogenous general prices based on a reformulation of DEA where the units collectively propose the set of weights that maximize their efficiency. Thus, the sector-wide efficiency is then a result of compromising the scores of more specialized smaller units, which also gives a more stable set of weights. The potential application could be to precipitate collective bargaining on cost efficiency under regulation with asymmetric information on relative prices and costs. The models are applied to paneldata from 285 Danish district heating plants, where the open evaluation of multiple non-priced outputs is relevant. The results show that sector wide weighting schemes favor input/output combinations that are less variable than would individual units.

Suggested Citation

  • Per J. Agrell & Peter Bogetoft, 2016. "Endogenous Common Weights as a Collusive Instrument in Frontier-Based Regulation," International Series in Operations Research & Management Science, in: Juan Aparicio & C. A. Knox Lovell & Jesus T. Pastor (ed.), Advances in Efficiency and Productivity, chapter 0, pages 181-194, Springer.
    • Handle: RePEc:spr:isochp:978-3-319-48461-7_8
    DOI: 10.1007/978-3-319-48461-7_8
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    Cited by:

    1. Núñez, F. & Arcos-Vargas, A. & Villa, G., 2020. "Efficiency benchmarking and remuneration of Spanish electricity distribution companies," Utilities Policy, Elsevier, vol. 67(C).
    2. Afsharian, Mohsen & Bogetoft, Peter, 2023. "Limiting flexibility in nonparametric efficiency evaluations: An ex post k-centroid clustering approach," European Journal of Operational Research, Elsevier, vol. 311(2), pages 633-647.
    3. Mohsen Afsharian, 2020. "A metafrontier-based yardstick competition mechanism for incentivising units in centrally managed multi-group organisations," Annals of Operations Research, Springer, vol. 288(2), pages 681-700, May.
    4. Mahlberg, Bernhard & Frank-Stocker, Andrea & Koller, Wolfgang & Ramerstorfer, Christian, 2023. "Cost efficiency of renewable district heating systems: the case of Austria," MPRA Paper 118595, University Library of Munich, Germany.
    5. Janis Edmunds Daugavietis & Raimonda Soloha & Elina Dace & Jelena Ziemele, 2022. "A Comparison of Multi-Criteria Decision Analysis Methods for Sustainability Assessment of District Heating Systems," Energies, MDPI, vol. 15(7), pages 1-23, March.

    More about this item

    Keywords

    DEA; Efficiency; Weights;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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