Data Envelopment Analysis within Evaluation of the Efficiency of Firm Productivity

Transcription

1 Data Envelopment Analysis within Evaluation of the Efficiency of Firm Productivity Michal Houda Department of Applied Mathematics and Informatics Faculty of Economics, University of South Bohemia in Česé Budějovice ROBUST 2018 Rybní, January 22, 2018

2 Introduction Measuring Productivity Efficiency productivity growth output variations that are not explained by input variations traditional approach: neglect inefficiencies in input/output usage (total) productivity growth = shift in technologies FARRELL, 1957 idea to measure productivity efficiency using all inputs (not only a selected one) technical efficiency = multiplicative inverse of the MALMQUIST (1953) and SHEPHARD (1957) input distance function CHARNES, COOPER, RHODES (1978) successful attempt to compute productivity efficiency using linear optimization model nonparametric approach data envelopment analysis (DEA): the efficiency frontier made up as the boundary of a convex hull of the data points different extensions to the model adopted Michal Houda DEA within Firm Productivity 2 / 29

3 Data Envelopment Analysis Notation, Efficiency Dominance DMU -th decision maing unit ( = 1,, K) X := (x i ) R m K input matrix x := (x 1,, x m ) input vector of DMU x i := (x i1,, x ik ) values for i-th input (i = 1,, m) Y := (y j ) R n K output matrix y := (y 1,, y n ) output vector of DMU y j := (y j1,, y jk ) values for j-th output (j = 1,, n) PPS production possibility set combination of allowed inputs and outputs DMU 0 with (x 0, y 0 ) DMU to be analyzed Definition 1 DMU 1 dominates DMU 2 wrt PPS if x x 0 and y y 0 with at least one (one-dimensional, input or output) inequality strict Definition 2 DMU 0 is efficient wrt PPS if (x, y) PPS dominating (x 0, y 0 ) Michal Houda DEA within Firm Productivity 3 / 29

4 Data Envelopment Analysis Notation, Efficiency Dominance DMU -th decision maing unit ( = 1,, K) X := (x i ) R m K input matrix x := (x 1,, x m ) input vector of DMU x i := (x i1,, x ik ) values for i-th input (i = 1,, m) Y := (y j ) R n K output matrix y := (y 1,, y n ) output vector of DMU y j := (y j1,, y jk ) values for j-th output (j = 1,, n) PPS production possibility set combination of allowed inputs and outputs DMU 0 with (x 0, y 0 ) DMU to be analyzed Definition 1 DMU 1 dominates DMU 2 wrt PPS if x x 0 and y y 0 with at least one (one-dimensional, input or output) inequality strict Definition 2 DMU 0 is efficient wrt PPS if (x, y) PPS dominating (x 0, y 0 ) Michal Houda DEA within Firm Productivity 3 / 29

5 Data Envelopment Analysis 0-1 Model Discrete Production Possibility Set Discrete PPS (BOWLIN, BRENNAN ET AL, 1984): PPS I = { (x, y ) } K =1 Dominance wrt PPS I : additive model with integer constraints max ( s + j + s ) i subject to j i x i λ + s i = x i0 i (inputs) y i λ s + i = y j0 j (outputs) λ = 1, λ {0, 1} K, s i, s + j 0 (1) s slac for Xλ x 0 // s + slac (surplus) for Yλ y 0 DMU 0 is efficient wrt PPS I if no slac is greater than 0 (i e, both inequalities are active) in optimal solution Michal Houda DEA within Firm Productivity 4 / 29

6 Data Envelopment Analysis 0-1 Model Discrete Production Possibility Set x y A B C D E F G H Michal Houda DEA within Firm Productivity 5 / 29

7 Data Envelopment Analysis BCC Model Continuous Production Possibility Set Continuous (convex) PPS (BANKER, COOPER, CHARNES, 1984): PPS C = { (x, y) x = Xλ, y = Yλ, λ = 1, λ 0 } Dominance wrt PPS C : BCC-I model min θ + ϵ ( s + j + s ) i subject to j i x i λ + s i = θx i0 i (inputs) y i λ s + i = y j0 j (outputs) λ = 1, λ 0, s i, s + j ϵ non-archimedean infinitesimal 0, θ unconstrained (2) Michal Houda DEA within Firm Productivity 6 / 29

8 Data Envelopment Analysis BCC Model Continuous Production Possibility Set Dual Problem Dual problem: max v T y 0 + q subject to u T x + v T y + q 0 (DMUs) u T x 0 = 1 (dual for θ) u ϵ1, v ϵ1, q unconstrained (3) q (dual for λ = 1) variable returns to scale (VRS) factor BCC-I DEA problem of fractional programming: max vt y 0 + q subject to u T x 0 v T y + q u T 1 (DMUs) x u T x 0 = 1, u/u T x 0 ϵ1, v/u T x 0 ϵ1, q unconstrained (4) Michal Houda DEA within Firm Productivity 7 / 29

9 Data Envelopment Analysis BCC Model Continuous Production Possibility Set Dual Problem Dual problem: max v T y 0 + q subject to u T x + v T y + q 0 (DMUs) u T x 0 = 1 (dual for θ) u ϵ1, v ϵ1, q unconstrained (3) q (dual for λ = 1) variable returns to scale (VRS) factor BCC-I DEA problem of fractional programming: max vt y 0 + q subject to u T x 0 v T y + q u T 1 (DMUs) x u T x 0 = 1, u/u T x 0 ϵ1, v/u T x 0 ϵ1, q unconstrained (4) Michal Houda DEA within Firm Productivity 7 / 29

10 Data Envelopment Analysis BCC Model Continuous Production Possibility Set DEA Efficiency Definition 3 (DEA Efficiency) DMU 0 is BCC-I (fully) efficient wrt PPS C if 1 θ = 1 2 s + = s = 0 Remar wea DEA efficiency: θ = 1 but some of s i, s + j are not zero (efficient points which are not extreme points of PPS) two-stage solution procedure: 1 solve the BCC-I problem with ϵ = 0 to obtain θ 2 solve the problem max j s+ j + i s i subject to remaining constraints where ϵ = 0 and θ = θ to obtain maximal possible slacs Michal Houda DEA within Firm Productivity 8 / 29

11 Data Envelopment Analysis BCC Model Continuous Production Possibility Set x y A B C D E F G H Michal Houda DEA within Firm Productivity 9 / 29

12 Data Envelopment Analysis BCC Model Continuous Production Possibility Set x y A B C D E F G H Michal Houda DEA within Firm Productivity 9 / 29

13 Data Envelopment Analysis CCR Model Linear Production Possibility Set Linear PPS (CHARNES, COOPER, RHODES (1978)): PPS L = { (x, y) x = Xλ, y = Yλ, λ 0 } Dominance wrt PPS L : CCR-I model min θ + ϵ ( s + j + s ) i subject to j i x i λ + s i = θx i0 i (inputs) y i λ s + i = y j0 j (outputs) λ 0, s i, s + j 0, θ unconstrained (5) Michal Houda DEA within Firm Productivity 10 / 29

14 Data Envelopment Analysis CCR Model Linear Production Possibility Set Dual Problem Dual problem: max v T y 0 subject to u T x + v T y 0 (DMUs) u T x 0 = 1 dual for θ) u ϵ1, v ϵ1 (6) q = 0 constant returns to scale (CRS) CCR-I DEA problem of fractional programming: max vt y 0 u T x 0 subject to v T y u T 1 (DMUs) x u T x 0 = 1, u/u T x 0 ϵ1, v/u T x 0 ϵ1 (7) Michal Houda DEA within Firm Productivity 11 / 29

15 Data Envelopment Analysis CCR Model Linear Production Possibility Set x y A B C D E F G H Michal Houda DEA within Firm Productivity 12 / 29

16 Data Envelopment Analysis CCR Model Linear Production Possibility Set x y A B C D E F G H Michal Houda DEA within Firm Productivity 12 / 29

17 Directional Distance Model Directional Distance Models (CHAMBERS, CHUNG, FÄRE (1996, 1998)): dealing with negative data g x, g y vectors of improvement directions Generic Directional Distance Model (wrt PPS C ): max β subject to x i λ x i0 βg x i i (inputs) y i λ y j0 + βg y j j (outputs) λ = 1, λ 0, β 0 0 (8) efficiency of DMU 0 : β = 0 special case: g x = x 0, g y = 0, θ = 1 β: BCC-I case Michal Houda DEA within Firm Productivity 13 / 29

18 Directional Distance Model Range Directional Model Range Directional Model range of possible improvements: g x i = x i0 min x i g y j = max y j y j0 I = (min x, max y ) ideal point max β subject to x i λ (1 β)x i0 + β min x i i (inputs) y i λ (1 β)y j0 + β min y j j (outputs) λ = 1, λ 0, β 0 0 (9) Michal Houda DEA within Firm Productivity 14 / 29

19 Production Possibility Sets Summary Production possibility sets (available technology): PPS L := { (x, y) x = Xλ, y = Yλ, λ 0 } PPS C := { (x, y) x = Xλ, y = Yλ, λ = 1, λ 0 } PPS s C := { (x, y) x = Xλ + s +, y = Yλ s, λ = 1, λ 0, s +, s 0 } PPS I := { (x, y) x = Xλ, y = Yλ, λ = 1, λ {0, 1} K} PPS := { (x, y) y can be produced from x} Desirable properties for PPS (general PPS) 1 convexity: if (x, y ) PPS and λ 0, λ = 1 then (Xλ, Yλ) PPS 2 free (strong) disposability of inputs and outputs: 1 if (x, y) PPS and x + := x + s + with s + 0 then (x +, y) PPS 2 if (x, y) PPS and y := y s with s 0 then (x, y ) PPS 3 minimum intersection: PPS is the intersection of all sets PPS satisfying properties 1 and 2, subject to (x, y) PPS Michal Houda DEA within Firm Productivity 15 / 29

20 Production possibility sets (available technology): PPS L := { (x, y) x = Xλ, y = Yλ, λ 0 } PPS C := { (x, y) x = Xλ, y = Yλ, λ = 1, λ 0 } Production Possibility Sets Summary PPS s C := { (x, y) x = Xλ + s +, y = Yλ s, λ = 1, λ 0, s +, s 0 } PPS I := { (x, y) x = Xλ, y = Yλ, λ = 1, λ {0, 1} K} PPS := { (x, y) y can be produced from x} (general PPS) Additional desirable properties for PPS 4 no free lunch: if (0, y) PPS then y = 0 5 no infinite outputs: A(x) := {(u, y) u x} is bounded x 6 closeness: PPS is closed (technical property) Usual assumption (may be eliminated by some extensions) 7 no negative inputs and outputs Michal Houda DEA within Firm Productivity 16 / 29

21 Application Food Industry Data: annual accounts of 380 Czech companies from the food industry (NACE C10) [selected year: 2014] Implementation: grouping the companies (according to the EC classification of economic activities) choosing appropriate inputs and outputs to be analysed choosing the model (returns to scale) computer implementation Issues: missing or implausible data negative inputs/outputs Michal Houda DEA within Firm Productivity 17 / 29

22 Application Example Companies: the whole group C10 (Manufacture of food products) Inputs SPMAAEN: material and energy consumption 89 companies with no costs reported ON: personnel costs STALAA: fixed assets (buildings, equipments) POSN: percentage of the personnel costs Outputs VYKONY: business performance ROA: return on assets (earning before interest and taxes per total assets) 70 companies having negative ROA Models and feasible solutions: input-oriented with variable returns to scale: 244 companies range directional model: 291 companies Michal Houda DEA within Firm Productivity 18 / 29

23 Application Alternatives Considered alternatives (not in today s presentation): Groups of companies: manufacture and processing of meat (78) / fish (3) /fruit and vegetables (18) / oils and fats (5) / dairy produts (28) / grain mills products (15) / baery and farinaceous products (109) / other food products (83) / prepared animal feeds (40) Inputs: production consumption / depreciations / tangible and intangible fixed assets / cost of capital Outputs: value of sales of goods and services / operating income / EBIT (earnings before interest and taxes) / value added Models: COOPER, SEIFORD, TONE (2007), COOPER, SEIFORD, ZHOE (2011): input/output oriented CRS/VRS DEA models with discretionary/non-discretionary ou alternative DEA models: additive (translation invariant), slac-based, Russel, free disposal hull, other directional distance Michal Houda DEA within Firm Productivity 19 / 29

24 Application Example continued BCC: 22 efficient companies (additional 3 with efficiency > 95 %) RDM: 10 efficient companies count count dearesults$thetaopt rdmresults$thetaopt Michal Houda DEA within Firm Productivity 20 / 29

25 Application Example continued BCC: from the groups, manufacture and processing of meat (8 of 78), manufacture of other food products (5 of 83) EffPercent 02 EffPercent # Companies in the Group # Companies in the Group Michal Houda DEA within Firm Productivity 21 / 29

26 Application Example continued distribution of a selected input for efficient and inefficient companies 4 4 density dearesults$thetaopt > 0999 FALSE TRUE density rdmresults$thetaop FALSE TRUE inputs$posn rdminputs$posn Michal Houda DEA within Firm Productivity 22 / 29

27 Application Example continued distribution of a selected output for efficient and inefficient companies density 4 dearesults$thetaopt > 0999 FALSE TRUE density rdmresults$thetaop FALSE TRUE outputs$roa rdmoutputs$roa Michal Houda DEA within Firm Productivity 23 / 29

28 Application Example continued distribution of a selected input and a selected output for efficient and inefficient companies Efficient rdm ROA 04 FALSE TRUE ROA POSN POSN Michal Houda DEA within Firm Productivity 24 / 29

29 Further Step Dynamic Behaviour Malmquist Type Indexes CAVES, CHRISTENSEN, DIEWERT (1982) input-based Malmquist productivity index defined as the ratio of two input distance functions (optimal values of DEA problems) FÄRE, GROSSKOPF, LINDGREN, ROOS (1992) introducing dynamics: the Malmquist index defined as the geometric mean of two indexes in Caves et al s sense (four DEA problems computed) the index can be decomposed into two components: an efficiency change (the ratio of the technical efficiencies in two time periods), and a technical change (the shift of the frontier between two time periods) input-oriented DEA model with CRS used to calculate the input distances further studies: using different distance functions / DEA models to calculate the index, e g CHUNG, FÄRE, GROSSKOPF (1997), OH (2010): (local and global) Malmquist-Luenberger index (using directional distance) ASMILD, BALEŽENTIS, HOUGAARD (2016): multi-directional efficiency BOUSSEMART, BRIEC ET AL (2009): (generalized) α-returns to scale Michal Houda DEA within Firm Productivity 25 / 29

30 Malmquist index Definition and Decomposition define an input (output) distance function D(x 0, y 0) for the DMU 0 as the inverse of the optimal value of the input (output) based DEA problem under technology PPS: D(x 0, y 0) := 1 θ tae these distance for two different time periods t, t + 1 define the Malmquist index as M t+1 D t := t (x t+1 0, y t+1 0 ) D t (x t 0, yt 0 ) Dt+1 (x t+1 0, y t+1 0 ) D t+1 (x t, y t ) two components of the Malmquist index: M t+1 t := EC t+1 t TC t+1 t efficiency change EC t+1 t := Dt (x t+1 0, y t+1 D t (x t 0, yt 0 ) technology change TC t+1 t := 0 ) D t (x t+1 0, y t+1 0 ) 0 ) D t (x t, y t ) D t+1 (x t, y t ) D t+1 (x t+1 0, y t+1 Michal Houda DEA within Firm Productivity 26 / 29

31 References I Cooper, W W, Seiford, L M and Zhu, J, eds (2011) Handboo on Data Envelopment Analysis Springer, New Yor, 2nd ed Cooper, W W, Seiford, L M and Tone, K, eds (2007) Data Envelopment Analysis Springer, New Yor, 2nd ed Shephard, R W (1953) Cost and Production Functions Princeton University Press, Princeton Michal Houda DEA within Firm Productivity 27 / 29

32 References II Malmquist, S (1953) Index numbers and indifference surfaces Trabajos de Estadistica, 4(2), Farrel, M J (1957) The Measurement of Productive Efficiency Journal of the Royal Statistical Society Series A (General), 120(3), Charnes, A, Cooper, W W, Rhodes, E (1978) Measuring the efficiency of decision maing units European Journal of Operational Research, 2(6), Baner, R D and Charnes, A and Cooper, W W (1984) Some models for estimating technical and scale inefficiencies in data envelopment analysis Management Science, 30(9), Bowlin, W F, Brennan, J, Cooper, W W and Sueyoshi, T (1984) DEA models for evaluating efficiency dominance Research Report of the University of Texas, Center for Cybernetic Studies, Austin Chambers, R G, Chung, Y and Färe, R (1996) Benefit and distance functions Journal of Economic Theory, 70(2), Michal Houda DEA within Firm Productivity 28 / 29

33 References III Caves, D W, Christensen, L R, Diewert, W E (1982) The economic theory of index numbers and the measurement of input, output, and productivity Econometrica, 50(6), Färe, R, Grossopf, S, Lindgren, B, Roos, P (1992) Productivity changes in Swedish pharmacies : A non-parametric Malmquist approach Journal of Productivity Analysis, 3, Chung, Y H, Färe, R, Grossopf, S (1997) Productivity and undesirable outputs: a directional distance function approach Journal of Environmental Management, 51(3), Oh, D-H (2010) A global Malmquist-Luenberger productivity index Journal of Productivity Analysis,34(3), Boussemart, J-P, Briec, W, Peypoch, N, Tavéra, C (2009) α-returns to scale and multi-output production technologies European Journal of Productivity Analysis, 197(1), Asmild, M, Baležentis, T, Hougaard, J L (2016) Multi-directional productivity change: MEA-Malmquist Journal of Productivity Analysis, 46(2 3), Michal Houda DEA within Firm Productivity 29 / 29