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Ranking with a Euclidean common set of weights in data envelopment analysis: with application to the Eurozone banking sector

Abstract : This paper provides a new method to define a Euclidean common set of weights (ECSW) in data development analysis (DEA) that (1) allows ranking both efficient and inefficient firms, (2) is more realistic in terms of determination of weights, and (3) generates rankings for banks consistent with their credit ratings. We first use DEA to determine the efficient frontier and then estimate a common set of weights that can minimize the Euclidean distance between the firms and that frontier. This process is illustrated by a simple numerical example and is extended to a real-life situation using the Eurozone banking sector. Our ECSW approach outperforms other common set of weights approaches in both numerical and real-life examples, and in terms of providing rankings consistent with banks’ credit ratings.
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https://hal-rennes-sb.archives-ouvertes.fr/hal-03699527
Contributor : Steven Gouin Connect in order to contact the contributor
Submitted on : Monday, June 20, 2022 - 12:04:58 PM
Last modification on : Tuesday, June 21, 2022 - 3:00:31 AM

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Helmi Hammami, Thanh Ngo, David Tripe, Dinh-Tri Vo. Ranking with a Euclidean common set of weights in data envelopment analysis: with application to the Eurozone banking sector. Annals of Operations Research, Springer Verlag, 2022, 311 (2), pp.675-694. ⟨10.1007/s10479-020-03759-6⟩. ⟨hal-03699527⟩

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