Measuring economic efficiency with incomplete price information: With an application to European commercial banks

Timo Kuosmanen, Thierry Post

Research output: Contribution to journalArticle

50 Citations (Scopus)

Abstract

Measuring economic efficiency requires complete price information, while resorting to technical efficiency exclusively does not allow one to utilise any price information. In most studies, at least some information on the prices is available from theory or practical knowledge of the industry under evaluation. In this paper we extend the theory of efficiency measurement to accommodate incomplete price information by deriving upper and lower bounds for Farrell's overall economic efficiency. The bounds typically give a better approximation for economic efficiency than technical efficiency measures that use no price data whatsoever. From an operational point of view, we derive new data envelopment analysis (DEA) models for computing these bounds using standard linear programming. The practical application of these estimators is illustrated with an empirical application to large European Union commercial banks.

Original languageEnglish
Pages (from-to)43-58
Number of pages16
JournalEuropean Journal of Operational Research
Volume134
Issue number1
DOIs
Publication statusPublished - Oct 1 2001

Keywords

  • Data envelopment analysis (DEA)
  • Economic efficiency measurement
  • Free disposable hull (FDH)
  • Imperfect price information
  • Weight-restricted models

ASJC Scopus subject areas

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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