Abstract

This paper evaluates the application of Data Envelopment Analysis (DEA) in a set of public organizations. DEA is a mathematical programming based technique, which determines the efficient production isoquant for a given input–output structure. Here efficiency is taken to mean relative efficiency with respect to the set of actual recorded input–output observations. This paper demonstrates that determining the appropriate input–output variables to characterize the problem requires careful consideration. Naive application of the mathematical programming algorithm will not result in meaningful performance measures. The characterization developed in this paper, yields performance measures which reflect and therefore should motivate achievement of objectives delegated by higher authorities. These results contrast with alternative control process methods, such as cash limits or simple efficiency performance indicators, which can motivate dysfunctional performance.

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