DEA-based hypothesis tests for comparing two groups of decision making units

Please cite this article in press as: Banker, R.D., Operational Research (2010), doi:10.1016/j.ejor In this paper, we develop five statistical tests to compare the efficiencies of different groups of DMUs. We consider a data generating process (DGP) that models the deviation of the output from the best practice frontier as the sum of two components, a one-sided inefficiency term and a two-sided random noise term. We use simulation to evaluate the performance of the five tests against the Banker test (Banker, 1993) that were designed for DGPs containing a single one-sided error term. It is found that while the Banker tests are very effective when efficiency dominates noise, the tests developed in this paper perform better than the Banker test when noise levels are significant. Published by Elsevier B.V.