Introducing a new DEA methodology for environmental inputs

Abstract

Data envelopment analysis or DEA is a standard methodology for assessing technical efficiency. In many DEA applications, e.g. in the case of schools or hospitals, the issue arises of calculating efficiency in the presence of nondiscretionary/environmental inputs. We propose a three-stage DEA model to address the environmental input issue, and we provide a simulation analysis that illustrates the implementation and potential advantages of our approach relative to the leading existing multi-stage model of nondiscretionary inputs.