A generalisation of the Farrell cost efficiency measure applicable to non-fully competitive settings

Abstract

This paper enhances cost efficiency measurement methods to account for situations where the input prices can depend onnegotiation or tend to qualitatively differentiate the resources available at each decision making unit. In these circumstances,there are some shortcomings in the cost efficiency measure described in the data envelopment analysis (DEA) literature. Thispaper proposes new models and measures for cost efficiency evaluation that overcome the limitations of the existing DEAmodels. The applicability of the measures developed is illustrated in the context of the analysis of bank branch performance.