Estimating and Decomposing Overall Inefficiency by Determining the Least Distance to the Strongly Efficient Frontier in Data Envelopment Analysis

Abstract

This paper proposes a new method to measure economic inefficiency of decision making units based on the calculation of the least distance to the Pareto-efficient frontier in Data Envelopment Analysis (DEA). While all previously published approaches that have dealt with the problem of determining least distances to the efficient frontier are focus on exclusively technical inefficiency, the new methodology opens the door to applications of this approach when market prices, together with inputs and outputs, are available. Finally, the paper empirically illustrates the new method using recent data on the mandarins' production in a Spanish eastern province.

Keywords: Data Envelopment Analysis, profit inefficiency, technical inefficiency, allocative inefficiency, closest targets, least distance

JEL Classification: C00