Input and output search in DEA: The case of financial institutions

© Springer Science+Business Media New York 2016. DEA has been extensively used but many problems remain unsolved. One of them is the selection of inputs and outputs. We propose here a methodology for input and output selection in the context of financial institutions. There are various views of what constitutes inputs and outputs in a financial institution. The paper uses multivariate statistical techniques in order to explore up to what point the various combinations of inputs and outputs are equivalent, and up to what point the efficiency score obtained by a given institution changes under the various combinations of inputs and outputs. This helps in the search for the best specification, and can guide other specification search tools such as the bootstrap. The extent to which two institutions that achieve the same efficiency score arrive at it following different strategies is explored with the aim of finding out what is behind a DEA score. By-products of the approach proposed here are the creation of league tables of financial institutions in terms of efficiencies and the possibility of assessing the strengths and weaknesses of individual institutions. This methodology is applied to the particular case of American banks efficiency.