Lower bound of cost efficiency measure in DEA with incomplete price information

The conventional cost efficiency model assumes that all the input prices are fixed and known exactly at each decision making unit. In practice, however, exact knowledge of prices is difficult and prices may be subject to variations over very short periods of time. In this paper, we develop a new DEA model, which can be transformed into a special case of bi-level linear program, to calculate the lower bound of CE efficiency from the pessimistic viewpoints based on the shortcomings of the existing approaches. As the input (price) cone of the pessimistic CE model tightens, the objective function converges to the traditional Farrell cost efficiency measure. Numerical examples are used to demonstrate the proposed approach and compare the results with those obtained with the existing approaches. Copyright Springer Science+Business Media New York 2013