Complete Closest-Target Based Directional FDH Measures of Efficiency in DEA

In this paper, we aim to overcome three major shortcomings of the FDH (Free Disposal Hull) directional distance function through developing two new, named Linear and Fractional CDFDH, complete FDH measures of efficiency. To accomplish this, we integrate the concepts of similarity and FDH directional distance function. We prove that the proposed measures are translation invariant and unit invariant. In addition, we present effective enumeration algorithms to compute them. Our proposed measures have several practical advantages such as: (a) providing closest Pareto-efficient observed targets (b) incorporating the decision maker’s preference information into efficiency analysis and (c) being flexible in computer programming. We illustrate the newly developed approach with a real world data set.