Two-dimensional efficiency decomposition to measure the demand effect in productivity analysis

Chia Yen Lee, Andrew L. Johnson

Research output: Contribution to journalArticlepeer-review

29 Citations (Scopus)

Abstract

This paper proposes a two-dimensional efficiency decomposition (2DED) of profitability for a production system to account for the demand effect observed in productivity analysis. The first dimension identifies four components of efficiency: capacity design, demand generation, operations, and demand consumption, using Network Data Envelopment Analysis (Network DEA). The second dimension decomposes the efficiency measures and integrates them into a profitability efficiency framework. Thus, each component's profitability change can be analyzed based on technical efficiency change, scale efficiency change and allocative efficiency change. An empirical study based on data from 2006 to 2008 for the US airline industry finds that the regress of productivity is mainly caused by a demand fluctuation in 2007-2008 rather than technical regression in production capabilities.

Original languageEnglish
Pages (from-to)584-593
Number of pages10
JournalEuropean Journal of Operational Research
Volume216
Issue number3
DOIs
Publication statusPublished - 2012 Feb 1

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modelling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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