DATA ENVELOPMENT ANALYSIS AS EFFICIENCY BENCHMARKING METHOD

Most regulatory schemes use comparison procedures or benchmarking as a methodology. In incentive regulation efficiency is measured a previous benchmark and the results deliver the information required to compare the companies' operation and allow the identification of the actions required to drive efficiency improvements. Data Envelopment Analysis model is a linear programming based technique for measuring the relative performance of organizational units where the presence of multiple inputs and outputs makes comparison difficult. This methodology was introduced by Charmes, Cooper and Rodes (1978) where they try to establish which companies of the sample determine the evaluation area of efficient production frontier. In this paper, we present the mathematical background and characteristics of DEA model, and give important steps how to apply this method. There are also described advantages and disadvantages of DEA method in regulation process. At the end of this paper we present studies results of electricity distribution companies in some European countries.