LAUSR

In this paper, we examine the implications of using different strongly efficient Decision Making Units (DMUs) as the Most Preferred Solution (MPS) in Value Efficiency Analysis (VEA) models with variable returns to scale. We provide protocols for consistent MPS choices, where a MPS choice is consistent if and only if the resulting VEA technology does not allow for free and/or unlimited production. In particular, we show that either a DMU that belongs to the set of strongly CCR-efficient DMUs or a combination of jointly strongly CCR-efficient DMUs constitute the only consistent MPS choices for both constant-returns-to-scale and variable-returns-to-scale VEA models. In addition, we show that the scale properties of the efficient VEA frontier are affected by the choice of the MPS and in essence depend on the range of the interval between the MPS’s right- and left-side scale elasticities.