ABSTRACT
Standard or black-box data envelopment analysis (DEA) evaluates the efficiency of thetransformation of a DMU’s exogenous inputs into itsfinal outputs by ignoring what is going onin its divisions (sub-DMUs). To cope with this problem, network DEA (NDEA), which canprovide adequate detail to management, has been developed and applied empirically. However,we show that some of the commonly used NDEA methodsare inconsistent with the notion ofPareto-Koopmans efficiency. Since the original development of DEA, Pareto-Koopmansefficiency is a fundamental property used in DEA. From a Pareto-Koopmans efficiencyperspective, therefore, we propose a two-phase NDEAapproach that can provide information onboth each DMU’s overall (system) efficiency statusand its divisions’ efficiency scores. Theproposed novel approach is developed based on the enhanced Russell graph model orequivalently the slacks-based model. We also propose several theorems and illustrate theproposed approach using two artificial numerical examples and a real-world data set.