Podinovski, Victor V. and Bouzdine-Chameeva, Tatiana. (2011) The impossibility of convex constant returns-to-scale production technologies with exogenously fixed factors. European Journal of Operational Research, Volume 213 (Number 1). pp. 119-123. ISSN 0377-2217

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Abstract

The extensions to the variable (VRS) and the constant (CRS) returns-to-scale models developed by Banker and Morey are considered among the main approaches to the incorporation of exogenously fixed factors in models of data envelopment analysis (DEA). Recently, Syrjanen showed that the Banker and Morey CRS technology is not convex. Taking into account that its subset VRS technology is explicitly assumed convex, this observation leads to difficulties with explaining the fundamental production assumptions of the CRS extension. Motivated by the example of Syrjanen, the contribution of this paper is twofold. First, we show that the nonconvex Banker and Morey CRS technology is nevertheless a suitable reference technology for the assessment of scale efficiency. Second, we ask if a convex technology could be constructed that would "correct" the nonconvexity of the CRS technology of Banker and Morey. The answer to this is negative: one consequence of assuming both convexity and ray unboundness with fixed exogenous factors is that we can always "mix-and-match" discretionary and nondiscretionary factors taken from different units, arriving at totally unrealistic production plans. This demonstrates that generally there exists no meaningful convex CRS technology with exogenously fixed factors that can be used in its own right, apart from its use as a reference technology in the measurement of scale efficiency. (C) 2011 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Subjects:	H Social Sciences > HA Statistics H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Warwick Business School > Operational Research & Management Sciences Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Data envelopment analysis, Economies of scale, Exogeneity (Econometrics)
Journal or Publication Title:	European Journal of Operational Research
Publisher:	Elsevier Science BV
ISSN:	0377-2217
Date:	2011
Volume:	Volume 213
Number:	Number 1
Page Range:	pp. 119-123
Identification Number:	10.1016/j.ejor.2011.03.003
Status:	Peer Reviewed
Publication Status:	Published
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URI:	http://wrap.warwick.ac.uk/id/eprint/41345

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