Comments on Kao and Hwang s two-stage approach for alternative returns to scale technologies

Data envelopment analysis (DEA) is a non-parametric approach for measuring the efficiency of decision making units (DMUs) which convert a set of inputs to a set of outputs without any consideration to internal operations of each DMU. In recent years, there have been various researches which handle two-stage systems. Two-stage systems are the systems which consume some inputs in their first stage to produce some outputs which are used as the inputs of the second stage to produce final outputs. One of these researches is the Kao and Hwang approach which presents the decomposition for system efficiency based on the efficiency of each stage. The main deficiency of their approach is that the introduced decomposition based on their measurement is only applied for the constant returns to scale (CRS) technology. In this article using this approach for alternative returns to scale technologies such as variables returns to scale (VRS) are considered. Some numerical example will used to illustrate the results.

Keywords:

Data envelopment analysis (DEA) , Two-stage systems , Returns to scale (RTS)