Measuring and decomposing profit inefficiency through the Slacks-Based Measure

• Published in: European journal of operational research Vol. 260; no. 2; pp. 650 - 654
• Main Authors: Aparicio, Juan, Ortiz, Lidia, Pastor, Jesus T.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 16-07-2017
• Subjects: DATA Envelopment Analysis; Profit inefficiency; Slacks-Based Measure; Profit inefficiency; Slacks-Based Measure; DATA Envelopment Analysis
• ISSN: 0377-2217; 1872-6860
• DOI: 10.1016/j.ejor.2016.12.038

• The literature on overall measurement and decomposition is briefly revised.• A new approach based on the Slacks-Based Measure is proposed.• Some properties of the new approach are proved.
The Slacks-Based Measure was introduced by Tone (2001) in order to estimate technical efficiency in the input-output space by taking into account all sources of technical inefficiency and satisfying, at the same time, many interesting properties. Since then, the Slacks-Based Measure has attracted the interest of numerous researchers and practitioners. The Slacks-Based Measure has been applied to technical efficiency determination, productivity change measurement, the analysis of production process performance consisting of networks, and so on. However, so far, the Slacks-Based Measure has not been directly related to profit inefficiency as a component of the overall economic performance of firms. In this note, we show how a specific normalized measure of profit inefficiency may be decomposed through the Slacks-Based Measure.