RAM: A Range Adjusted Measure of Inefficiency for Use with Additive Models, and Relations to Other Models and Measures in DEA

Abstract

Generalized Efficiency Measures (GEMS) for use in DEA are developed and analyzed in a context of differing models where they might be employed. The additive model of DEA is accorded a central role and developed in association with a new measure of efficiency referred to as RAM (Range Adjusted Measure). The need for separately treating input oriented and output oriented approaches to efficient measurement is eliminated because additive models effect their evaluations by maximizing distance from the efficient frontier (in ℓ 1 , or weighted ℓ 1 , measure) and thereby simultaneously maximize outputs and minimize inputs. Contacts with other models and approaches are maintained with theorems and accompanying proofs to ensure the validity of the thus identified relations. New criteria are supplied, both managerial and mathematical, for evaluating proposed measures. The concept of “approximating models” is used to further extend these possibilities. The focus of the paper is on the “physical” aspects of performance involved in “technical” and “mix” inefficiencies. However, an Appendix shows how “overall, ” “allocative” and “technical” inefficiencies may be incorporated in additive models. Copyright Kluwer Academic Publishers 1999