This paper proposes an approach to compute cost efficiency in contexts where units can adjust input quantities and to some degree prices so that through their joint determination they can minimise the aggregate cost of the outputs they secure. The model developed is based on the data envelopment analysis (DEA) framework and can accommodate situations where the degree of influence over prices ranges from minimal to considerable. When units cannot influence prices at all the model proposed reduces to the standard cost efficiency DEA model for the case where prices are taken as exogenous. In addition to the cost efficiency model, we introduce an additive decomposition of potential cost savings into a quantity and a price component, based on Bennet indicators.
Bibliographical noteNOTICE: this is the author’s version of a work that was accepted for publication in Omega. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Portela, M. C. A. S., & Thanassoulis, E. Economic efficiency when prices are not fixed: disentangling quantity and price efficiency. Omega. Vol. 47. (2014) DOI: http://dx.doi.org/10.1016/j.omega.2014.03.005
- cost efficiency
- price efficiency
- Bennet indicators
- data envelopment analysis