Regional sustainability efficiency index in Europe: an additive two-stage DEA approach

Abstract

In this paper we apply a relational additive two-stage data envelopment analysis model in order to create sustainability efficiency indices for European regions. The sustainability efficiency indices are decomposed into production efficiency and eco-efficiency indicators in the first and the second stage respectively. The production efficiency is defined as the ratio of the financial output over the inputs and the eco-efficiency is defined as the ratio of the bad output over the financial output which serves as an intermediate variable. We treat the heterogeneity among countries using a metafrontier framework. The results reveal inequalities among the examined regions for the eco-efficiency stage.

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Fig. 1

Notes

  1. 1.

    Kuosmanen (2005), Färe and Grosskopf (2009), Kuosmanen and Podinovski (2009) and Kuosmanen and Matin (2011) provide an interesting discussion on the topic of weak disposability.

  2. 2.

    This approach has also attracted criticism about the violation of the true production process due to the use of outputs as inputs (Seiford and Zhu 2002). Furthermore, the approach caused a debate around its validity (Färe and Grosskopf 2003; Hailu 2003).

  3. 3.

    We can assume either constant returns to scale (CRS) or variable returns to scale (VRS) in both stages. The model can not handle an extreme case where one needs to assume CRS in one stage and VRS in the other stage.

  4. 4.

    Even though that the results have been calculated under the VRS assumption, we have applied the models also for the CRS case (for robustness check). Furthermore, we have calculated the Spearman rank correlation in order to examine whether the results of the rankings are different between CRS and VRS models. The results were 0.926 for the overall sustainability efficiency, 0.911 for the first stage production efficiency and 0.979 for second stage eco-efficiency, indicating that there are not any significant differences between CRS and VRS efficiency estimates. Finally, the estimated efficiency scores under the CRS assumption are available upon request.

  5. 5.

    Available from: http://rag.oecd.org/.

  6. 6.

    Available from: http://epp.eurostat.ec.europa.eu/portal/page/portal/nuts_nomenclature/introduction.

  7. 7.

    Other variables (pollutants) such as SO2, and NOx emissions can be incorporated in order to for the model to grasp the more aspects on the eco-efficiency stage, however, this was not possible due to data availability.

  8. 8.

    The two-stages can not be compared directly since they are different DEA models and measure different aspects of the overall process. However, since they are the sub-components of an overall index if the decision maker wishes to improve the overall index, it has to be decided whether to improve production efficiency or eco-efficiency. In this case we propose that eco-efficiency has relatively more potential for improvement than production efficiency because the later is close to its full potential.

  9. 9.

    As has been stated, year 2008 marks the beginning of the first commitment period of Kyoto protocol. It is likely that a future study after year 2012, when the first commitment period ends, might yield different results. Considering the empirical findings, our suggestion to the decision maker about the improvement of the eco-efficiency index, rather than the production efficiency index, in order to improve the overall sustainability index, seems more realistic.

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Acknowledgments

We would like to thank Constantin Zopounidis (the Editor) and two anonymous reviewers for their useful comments made on earlier versions of the paper. Finally, we would like to thank the participants of the first Panhellenic Conference on “Environmental and Resource Economics: Climate change” which took place on March 26–27 at the University of Thessaly, Volos, Greece for the valuable comments and suggestions. Any remaining errors are solely the authors’ responsibility.

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Correspondence to George E. Halkos.

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Halkos, G.E., Tzeremes, N.G. & Kourtzidis, S.A. Regional sustainability efficiency index in Europe: an additive two-stage DEA approach. Oper Res Int J 15, 1–23 (2015). https://doi.org/10.1007/s12351-015-0170-4

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Keywords

  • Additive two-stage DEA
  • Sustainability efficiency index
  • European regions