Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: This paper presents a statistical framework for estimating output-specific efficiencies for the 2-output case based upon a DEA frontier estimate. The key to the approach is the concept of target output-mix. Being usually unobserved, target output-mixes of firms are modelled as missing data. Using this concept the relevant data generating process can be formulated. The resulting likelihood function is analytically intractable, so a data augmented Bayesian approach is proposed for estimation purposes. This technique is adapted to the present purpose. Some implementation issues are discussed leading to an empirical Bayes setup with data informed priors. A prove of scale invariance is provided.

Keywords: Data Envelopment Analysis; output specific efficiency; data augmentation; Markov Chain Monte Carlo

JEL-codes: D24; C11; C15 February 2003

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