Efficiency Assessment in Two-stage Processes: A Novel Network DEA Approach

Abstract

A two-stage production process assumes that the first stage transforms external inputs to a number of intermediate measures, which then are used as inputs to the second stage that produces the final outputs. The fundamental approaches to two-stage DEA are the multiplicative and the additive efficiency-decomposition approaches. Both they assume a series relationship between the two stages but they differ in the definition of the overall system efficiency as well as in the way they conceptualize the decomposition of the overall efficiency to the efficiencies of the individual stages. In this paper, we present a novel approach to estimate unique and unbiased efficiency scores for the individual stages, which are then composed to obtain the efficiency of the overall system, by selecting the aggregation method a posteriori. The results derived from our approach are compared with those obtained by the aforementioned basic methods on experimental data as well as on test data drawn from the literature.