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2 months ago in Efficiency Measurement By Heena

What does the dual dea model actually mean?

In the dual formulation of the constant-returns-to-scale DEA model, we minimize θ. But what does that θ physically represent?

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By Pragati Answered 1 month ago

θ is the "input reduction factor" the smallest proportion to which the firm could shrink all its inputs and still produce at least the same output, given the technology of all other firms. Minimizing θ means asking: what's the most generous possible efficiency score we can assign this firm, given the observed best practice? It's a radial contraction: if θ = 0.8, the firm could (in theory) reduce all inputs by 20% and still match its output. It's not judgment. It's a benchmark. The dual finds the friendliest comparison group and asks: how does this firm measure up?

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