Decision Making and Productivity Measurement

TL;DR

This paper discusses how to measure productivity and efficiency in firms, especially when firms are heterogeneous, using a linear programming DEA model with known weights, illustrated through a numerical example.

Contribution

It introduces a DEA model with known weights for assessing efficiency of heterogeneous firms with multiple inputs and outputs.

Findings

DEA model effectively measures efficiency with known weights.

Heterogeneous firms require standardized data for meaningful comparison.

Numerical example demonstrates practical application of the model.

Abstract

In this article, the concepts of technical efficiency, efficiency, effectiveness and productivity are illustrated. It is discussed that when firms are not homogenous, the situation is the same as when each factor has a different unit of measurement from one firm to another, and there-fore, no meaningful discrimination can be expressed, unless a set of known weights are introduced to standardize data. A linear programming DEA model is used when a set of known weights are given to calculate the technical efficiency and efficiency of a set of homogenous DMUs with multiple input factors and output factors. A numerical example is also provided.