Optimal Paths And Costs Of Adjustment In Dynamic DEA Models: With Application To Chilean Department Stores |
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Authors: | Filadelfo de Mateo Tim Coelli Chris O'Donnell |
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Institution: | 1. Universidad Adolfo Ibá?ez, Vi?a del Mar, Chile 2. University of Queensland, Brisbane, Australia
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Abstract: | In this paper we propose a range of dynamic data envelopment analysis (DEA) models which allow information on costs of adjustment to be incorporated into the DEA framework. We first specify a basic dynamic DEA model predicated on a number of simplifying
assumptions. We then outline a number of extensions to this model to accommodate asymmetric adjustment costs, non-static output
quantities, non-static input prices, and non-static costs of adjustment, technological change, quasi-fixed inputs and investment
budget constraints. The new dynamic DEA models provide valuable extra information relative to the standard static DEA models—they identify an optimal path of adjustment for the input quantities, and provide a measure of the potential cost
savings that result from recognising the costs of adjusting input quantities towards the optimal point. The new models are
illustrated using data relating to a chain of 35 retail department stores in Chile. The empirical results illustrate the wealth
of information that can be derived from these models, and clearly show that static models overstate potential cost savings
when adjustment costs are non-zero.
This paper arises out the senior author's PhD thesis at the University of New England, Australia. The authors gratefully acknowledge
Dr. George E. Battese for his comments on earlier drafts of this work. |
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Keywords: | Cost of adjustment Dynamic DEA Path of adjustment |
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