Compensation analysis with additive DEA model

Abstract

PurposeTo develop a method of compensation analysis based on the additive data envelopment analysis model.Design/methodology/approachIt is a common assumption in current target setting literature that outputs of decision making units (DMUs) are generated simultaneously. In practice, outputs of DMUs may be generated consecutively, and targets of posterior outputs may need to be adjusted to keep a DMU efficient when the anterior output cannot reach the previously set output target. The proposed method determines a compensation rate among consecutive outputs, which is applied to keep a DMU efficient when the decrease of an anterior output exceeds its stability region. This compensation analysis is also extended to consecutive inputs.FindingsSufficient and necessary conditions for preserving efficiency upon output compensation are presented.Research limitations/implicationsThe compensation analysis when multiple anterior outputs decrease from their previously set targets is the main limitation, and needs further investigation.Practical implicationsThe paper is a useful method for decision maker to set target consecutively.Originality/valueThe paper defines a new target setting (adjusting) problem, in which targets of posterior outputs may need to be adjusted to keep a DMU efficient if an anterior output of the DMU decreases from its previously set target. Theoretical analyses of the compensation analysis are provided.