Estimating returns to scale in DEA

This paper addresses issues of returns to scale in Data Envelopment Analysis. Starting with the model developed by Banker, but avoiding Banker's conclusions on returns-to-scale, the paper shows how two close variants (inputs and outputs oriented) of the Banker-Charnes-Cooper model can be used to provide precise estimates of returns to scale. The estimation of returns to scale for each unit is done by testing the existence of solutions in four regions defined in the neighborhood of the analyzed unit. Numerical examples and graphs are used to illustrate the proposed procedures. (C) 1997 Elsevier Science B.V.