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Technical efficiency decomposition in DEA: a review and improvement with an application in Slovak urban transport

ABSTRACT The article deals with the issue of a technical efficiency (TE) decomposition of decision-making units (DMUs) using data envelopment analysis (DEA). The article summarizes two established DEA decomposition approaches and shows that although these approaches are straightforward and relatively easy to apply in empirical analyses, they are associated with certain shortcomings. As discussed in the article, these shortcomings are mainly related to the way in which the mix efficiency is measured and to the fact that they focus only on one side of efficiency (input or output). The article attempts to overcome these limitations and proposes an alternative simple decomposition method in which problems with measuring mix efficiency are eliminated and both efficiency of inputs, as well as efficiency of outputs are incorporated. The proposed method so provides a comprehensive view on the activities of the evaluated DMUs and points to specific sources of technical inefficiency in the overall input-output view. The case of urban transport companies (UTCs) in the Slovak Republic is revisited using this newly developed approach.