Pro-efficiency: Data speak more than technical efficiency

Abstract

In this study, we demonstrate a new method of addressing efficiency in situations in which only the input and output data are available, while evaluating efficiency more accurately than is possible via the ordinary data envelopment analysis (DEA). Technical efficiency is important, but management always desires information regarding the profit aspects of performance. In practice, however, the precise price data are frequently unavailable. Is it possible to approximate profit efficiency in the absence of price information? We develop a simple and usable approach, a linear programming model, for the evaluation of profit efficiency. Our approach implies technical efficiency in DEA and gives rise to the upper bound of profit efficiency, referred to as pro-efficiency. We also report a successful application of our method to a securities company, in which a comparison of the actual profit data and the pro-efficiency measures of the company's branches demonstrates a significant correlation. (C) 2011 Elsevier B.V. All rights reserved.