Measuring and Analyzing Operational Efficiency and Returns to Scale in a Time Horizon: Assessment of China’s Electricity Generation & Transmission at Provincial Levels

Abstract

This study discusses the assessment of OE (operational efficiency) and RTS (returns to scale) over a time horizon. Many previous DEA (Data Envelopment Analysis) studies have discussed how to measure OE/RTS. However, their works did not consider the measurement over time. The important feature of the proposed approach is that our models are different from standard ones in terms of factor (inputs and outputs) unification. A problem with standard models is that they produce different efficiency measures for input and output orientations. Consequently, they yield different OE and RTS estimates depending upon which production factor is used for measurement. To handle the difficulty, we develop a new DEA formulation whose efficiency measure is determined after combining inputs and outputs, and then we discuss how to measure the types of RTS. The other methodological feature is that the proposed model incorporates a time horizon. As an empirical application, this study considers electricity generation and transmission across Chinese provinces from 2006 to 2019. The first key outcome is that the performance of China’s electricity generation and transmission system tends to improve with an annual growth rate of 0.45% across time. The second outcome is that, during the observed periods, China has more occurrences of decreasing rather than increasing RTS. As an implication, some provinces (e.g., Jiangxi and Hainan) need to increase their generation sizes to enhance their OE measures, while other provinces (e.g., Jiangsu and Zhejiang) should decrease their generation sizes. Finally, this study confirms significant technological heterogeneity across Chinese provinces and groups.