Abstract
Data Envelopment Analysis (DEA) applications frequently involve nonsubstitutable inputs and nonsubstitutable outputs (that is, fixed proportion technologies). However, DEA theory requires substitutability. In this paper, we illustrate the consequences of nonsubstitutability on DEA efficiency estimates, and we develop new efficiency indicators that are similar to those of conventional DEA models except that they require nonsubstitutability. Then, using simulated and real-world datasets that encompass fixed proportion technologies, we compare DEA efficiency estimates with those of the new indicators. The examples demonstrate that DEA efficiency estimates are biased when inputs and outputs are nonsubstitutable. The degree of bias varies considerably among decision making units, resulting in substantial differences in efficiency rankings between DEA and the new measures. And, most of the units that DEA identifies as efficient are, in truth, not efficient. We conclude that when inputs and outputs are not substituted for either technological or socio-economic/legal reasons, conventional DEA models should be replaced with models that account for nonsubstitutability.
Highlights
When inputs are nonsubstitutable, they cannot replace each other in the production of a constant amount of output
Production systems using nonsubstitutable inputs are wellknown in economics, and are often called ‖Leontief‖ technologies or ―Fixed Factor
In this paper we identify the effects on efficiency measurement if conventional
Summary
They cannot replace each other in the production of a constant amount of output. Such inputs must be utilized in a fixed proportion to produce their output, and any quantity of an input in excess of the required ratio is wasted. For a constant amount of input, production of one output cannot be increased by producing less of another. Such production systems are ―Fixed Product Proportion. Technologies‖ (Beattie and Taylor 1985) When both inputs (factors of production) and outputs (products) are nonsubstitutable, we call the production systems ―Fixed. Empirical evidence may be required to indentify the presence (or absence) of substitutability if the fixed proportions are not mandated by the technology
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
