Accounting for site characteristics in DEA: leveling the playing field

Many decision‐making units (DMUs) operate under site characteristics that differ significantly from those experienced by other DMUs and these differences may affect their efficiency rating. Often, these characteristics are beyond the control of a DMU and may involve environmental and demographic factors, such as topography, population density, and economic welfare. Comparing efficiency ratings absent appropriate attention to variations in these factors across DMUs is unfair. This paper presents a new procedure for removing the influence of site characteristics, which is a vital step in performing efficiency analysis when DMUs operate under significantly different conditions.