Overcoming data limitations in nonparametric benchmarking: Applying PCA-DEA to natural gas transmission

Abstract

We empirically demonstrate a practical approach of efficiency evaluation with limited data availability in some regulated industries. We apply PCA-DEA for radial efficiency measurement to U.S. natural gas transmission companies in 2007. PCA-DEA reduces dimensions of the optimization problem while maintaining most of the variation in the original data. Our results suggest that the methodology reduces the probability of over-estimation of individual firm-specific performance. © 2010 Berkeley Electronic Press. All rights reserved.