An Improved Model for Assessing the FDH-Cost Efficiency

Abstract

Recently Leleu [A linear programming framework for free disposal hull (FDH) technologies and cost functions: Primal and dual models] presented a linear model for assessing the FDH-cost function with various returns to scale assumptions. He stated that economic inefficiency can be computed as the ratio of the observed cost to the minimum cost and, as usual, the allocative inefficiency is computed as the ratio between the economic and the technical inefficiencies. In this paper, we propose a modified model with various returns to scale assumptions that has fewer constraints and variables than Leleu's model and obtains the FDH-cost efficiency directly. Reducing nm constraints and nm variables, where n is the number of DMUs and m is the number of inputs, leads to the computational advantage of our model over that of Leleu.