Measuring inefficiency via potential improvements

In a recent paper Bogetoft and Hougaard (1999) suggest the use of a new potential improvements approach to efficiency evaluation which has the advantage of separating the issue of benchmark selection from the issue of efficiency measurement. In the present paper the potential improvements inefficiency index is reexamined and a DEA-like approach for its determination is suggested. The approach is called Multi-directional Efficiency Analysis (MEA). An empirical example on Danish dairy farms is used for illustrative purposes and comparisons with various versions of DEA.