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A revised dynamic data envelopment analysis model with budget constraints

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Abstract

Abstract In this study, we focus on an unintended limitation in the conventional specification of budget constraints in dynamic data envelopment analysis (DEA). In particular, it is revealed that in the existing models, the production possibilities tend to be underestimated owing to misleading assumptions, and consequently, the models yield overstated efficiency measures. Besides addressing the relevant issues, we developed a revised dynamic DEA model to properly take budget constraints into account in a dynamic setting, while preserving the major principles of efficiency analysis. We compared the proposed model with the intertemporal cost indirect technology to clarify the differences. Finally, we illustrated, by way of examples, an empirical case of operational assessment in fire departments.

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