Data envelopment analysis for performance evaluation: A child’s guide

Abstract

In this paper we offer a simple exposition of the neoclassical production theoretic foundations of Data Envelopment Analysis (DEA). The concepts of technical efficiency (both input and output oriented), scale efficiency, and cost efficiency are explained, and the corresponding DEA models are described in detail. We offer step-by-step instruction on how to write the codes for solving various DEA models using the Solver option in the widely accessible MS Excel software. An important feature of this paper is a detailed exposition of how to write various Visual Basic Macro programs for solving DEA problems. We also describe the non-convex free disposal hull (FDH) procedure and the second-stage regression analysis that seeks to account for variation in measured efficiency scores due to external factors.