How to properly decompose economic efficiency using technical and allocative criteria with non-homothetic DEA technologies
We discuss the decomposition of economic efficiency under non-homotheticity. Radial measures estimate true technical efficiency only for CRS with one output. In a non-homothetic setting, we show how to correctly decompose economic efficiency. We define a new directional distance function with endogenous direction. We show that large differences arise using either the standard or the new approach.
technical efficiency data envelopment analysis overall efficiency allocative efficiency homotheticity