Measuring the Efficiency of Electricity Generating Plants with Fixed Proportion Technology Indicators
In Data Envelopment Analyses (DEA) of fossil-fuel electricity generating plants, the most common input measures are installed generator capacity (as a proxy for capital), number of employees (as a proxy for labor), and BTUs of fuel (as a proxy for energy). However, these three inputs cannot be substituted for each other in the production of electricity. That is, as demonstrated in the paper, electricity generation employs a fixed factor proportion technology. We illustrate the impact of input nonsubstitutability on DEA efficiency estimates, and develop two new efficiency indicators for fixed proportion technologies. We call the first the Fixed Proportion Additive (FPA) measure, and, using electricity generating plant data, we compare its estimates of technical efficiency to those of the DEA Additive measure. We call the second the Fixed Proportion Ratio (FPR) measure, and compare its estimates of electricity generating plant efficiency with those of the Charnes-Cooper-Rhodes (CCR) measure and the Enhanced Russell Measure (ERM)