Stochastic efficiency analysis with a reliability consideration

• The model proposed is a stochastic variant of the deterministic CCR DEA model.
• The new model bridges two existing stochastic DEA models in the literature.
• The stochastic efficiency index is interpreted under joint normality.
• An iterative procedure is presented to compute the stochastic efficiency index.

Stochastic Data Envelopment Analysis (DEA) models have been introduced in the literature to assess the performance of operating entities with random input and output data. A stochastic DEA model with a reliability constraint is proposed in this study that maximizes the lower bound of an entity׳s efficiency score with some pre-selected probability. We define the concept of stochastic efficiency and develop a solution procedure. The economic interpretations of the stochastic efficiency index are presented when the inputs and outputs of each entity follow a multivariate joint normal distribution.