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DEA
DEA-NETWORK - Two-Stage Network DEA with Undesirable Outputs
Non-parametric network efficiency - Two-stage production with intermediate products and bad outputs
Fukuyama, H., Weber, W. L.2010doi:10.1016/j.omega.2009.10.006 ↗
Overview
DEA-NETWORK extends black-box DEA by modelling internal production structure with intermediate products. Stage 1 produces intermediate goods (e.g. deposits); Stage 2 converts them to final outputs plus undesirable by-products (e.g. nonperforming loans). Weak disposability handles bad outputs. Link constraints ensure intermediate product consistency between stages.
- Output
- Efficiency, lower is better
- Data
- Crisp
- Size
- 5+ alternatives, N+Q+M+L ≤ J/3 criteria works best
- Used for
- Banking performance with NPLs, supply chain efficiency, multi-stage production systems, healthcare with intermediate care stages
Look elsewhere when
- •Production structure has no intermediate products - use standard DEA
- •No undesirable outputs - use standard two-stage network without weak disposability
- •Small sample (J < 3*(N+Q+M+L))
Assumptions to verify
- Two-stage production structure is appropriate for the application
- Intermediate products clearly defined and measurable
- Bad outputs jointly produced with good outputs (not separable)
- All data strictly positive
Edge cases and pitfalls
Treating intermediate products as only outputs of stage 1 without enforcing them as inputs to stage 2 (link constraint) leads to incorrect efficiency estimates.
How to cite
Fukuyama, H.; Weber, W. L. (2010). A slacks-based inefficiency measure for a two-stage system with bad outputs. Omega. https://doi.org/10.1016/j.omega.2009.10.006
System ID, as it appears in reports and the API
DEA-NETWORK