A Two-Step Benchmarking Approach in Value Efficiency Analysis

Abstract

Basic Data Envelopment Analysis models are intrinsically preference-free. However, there exist several approaches for incorporating decision maker’s preference(s) into the procedure of efficiency analysis; among them value efficiency analysis is one of the most practical approaches. In value efficiency analysis it is assumed that the decision maker has an implicit value function and he/she presents his/her preferences by means of determining the most preferred solution among all existing activities. Besides estimating the value efficiency score for each unit, value efficiency analysis is capable of setting benchmarks for value inefficient units. In this paper, we develop a two-step target setting approach in the framework of value efficiency analysis, in order to provide more realistically achievable targets.