GRIPS Policy Information Center Discussion Paper:09-14 1 Technical efficiency based on cost gradient measure

This study introduces a new scheme of data envelopment analysis (DEA) named cost gradient measure (CGM) to evaluate technical efficiency. In this model, we can obtain more cost conscious technical efficiency than those by other traditional DEA models such as CCR[7] and slacks-based measure (SBM) [19]. In addition, the CGM can avoid shortcomings of these traditional models, i.e. factor inefficiency scores can be measured for each input as opposed to CCR and SBM models. In this study, we show the generality of CGM that it includes CCR as a special case; and compare the CGM result with those of the other DEA models using illustrative data, and clarify favorite features of this model. In addition, we also apply these models to Japanese electric utilities and explain the characteristics of their results