Slacks-based inefficiency approach for general networks with bad outputs: An application to the banking sector

• Efficiency assessment in general networks of processes with bad outputs.
• Slacks-based inefficiency measure, for each process and for the overall system.
• Target values for all inputs, outputs and intermediate products are provided.
• Undesirable outputs are considered weakly disposable, yet optimization model is LP.
• Two applications to banking sector are presented: banks and bank branches.

In this paper the efficiency assessment of general networks of processes that produce both desirable and undesirable outputs is addressed. This problem arises in many contexts (e.g. transportation, energy generation, etc.). A general networks slacks-based inefficiency (GNSBI) measure can be computed using a simple linear program that takes into account the weak disposability of the bad outputs. The slacks-based inefficiency (SBI) of each process is also calculated. Target values for all inputs, outputs (both desirable and undesirable) and even intermediate products are also provided. The proposed approach is rather general and can accommodate many different network topologies and returns to scale assumptions. Two applications to the banking sector are presented: one to assess banks efficiencies and another to assess bank branches.