In search for the most preferred solution in value efficiency analysis

Abstract

Choosing the Most Preferred Solution (MPS), namely a real or artificial Decision Making Unit (DMU) reflecting the decision maker’s preferences over the desirable structure of inputs and outputs, is of particular importance in Value Efficiency Analysis (VEA). In this paper, we review various MPS choices used in the VEA literature and propose some new, which rely respectively on the relative position of frontier DMUs, the Most Productive Scale Size (MPSS), the Average Production Unit (APU), and common vectors of weights. The suggested MPS choices reflect overall organizational goals such as the pursuit of scale economies and the maximization of structural efficiency, or the need to assess DMUs against common standards because of limited control over the resources allocated to them or autonomy in setting their own priorities. The potential implications of using different MPSs in VEA are illustrated by providing comparative empirical results using a dataset of 526 Greek cotton farms.

Distance‐based weighting methods for composite indicators, with applications related to energy sustainability

“…There are several other performance evaluation problems where common weights are used. For example, common weights are implicitly assumed when estimating the technical efficiency of DMUs that belong to the same entity as branches of the same bank, using the centralized resource DEA model (see Lozano and Villa, 2004;Par-Molinero et al, 2014) or when value efficiency analysis (Halme et al, 1999) is used to assess technical efficiency and DMUs being on the same facet of the efficient frontier are a priori supposed to be peers of all the evaluated DMUs because, on DM's judgment or preference, they are considered as the most preferred solution (see Ravanos and Karagiannis, 2022) for alternative ways of choosing the most preferred solution(s), that is, as having the preferred input-output ratios.…”