Sensitivity of directional technical inefficiency measures to the choice of the direction vector: a simulation study

Abstract

The purpose of this note is to provide new insights on the sensitivity of technical inefficiency scores, estimated using a directional distance function with small samples and the presence of outliers, to the choice of the direction vector. A simulation study with a geometric illustration is conducted considering several direction vectors. To the best of authors' knowledge, this is the first simulation work comparing 16 direction vectors, some of which are often employed in empirical studies. The four directional vectors that consistently provide the best results are identified and used in the empirical application discussed in this study.