A hybrid approach to efficiency measurement with empirical illustrations from education and health

Inefficiency is commonplace, yet exercises aimed at improving provider performance efforts to date to measure inefficiency and use it in benchmarking exercises have not been altogether satisfactory. This paper proposes a new approach that blends the themes of Data Envelopment Analysis and the Stochastic Frontier Approach to measure overall efficiency. The hybrid approach nonparametrically estimates inefficiency by comparing actual performance with comparable real-life"best practice"on the frontier and could be useful in exercises aimed at improving provider performance. Four applications in the education and health sectors are used to illustrate the features and strengths of this hybrid approach.