A DEA-based incentives system for centrally managed multi-unit organisations

Mohsen Afsharian*, Heinz Ahn, Emmanuel Thanassoulis

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

In multi-unit organisations such as a bank and its branches or a national body delivering publicly funded health or education services through local operating units, the need arises to incentivize the units to operate efficiently. In such instances, it is generally accepted that units found to be inefficient can be encouraged to make efficiency savings. However, units which are found to be efficient need to be incentivized in a different manner. It has been suggested that efficient units could be incentivized by some reward compatible with the level to which their attainment exceeds that of the best of the rest, normally referred to as “super-efficiency”. A recent approach to this issue (Varmaz et. al. 2013) has used Data Envelopment Analysis (DEA) models to measure the super-efficiency of the whole system of operating units with and without the involvement of each unit in turn in order to provide incentives. We identify shortcomings in this approach and use it as a starting point to develop a new DEA-based system for incentivizing operating units to operate efficiently for the benefit of the aggregate system of units. Data from a small German retail bank is used to illustrate our method.
Original languageEnglish
Pages (from-to)587-598
Number of pages12
JournalEuropean Journal of Operational Research
Volume259
Issue number2
Early online date27 Oct 2016
DOIs
Publication statusPublished - 1 Jun 2017

Bibliographical note

© 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

  • Data Envelopment Analysis
  • DEA
  • centralised management
  • incentive regulation
  • banking

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