Efficiency evaluation of Chinese regional industrial systems with undesirable factors using a two-stage slacks-based measure approach

The process of a regional industrial system in China can be separated into two internal stages: production stage and pollutant abatement stage. This paper aims to examine the efficiency of Chinese regional industrial systems by taking the operational performance of its two internal stages into consideration. Unlike traditional data envelopment analysis models that treat decision making units as “black box” when measuring their efficiencies with undesirable factors, this paper proposes a two-stage model based on slacks-based measure to evaluate the efficiency of Chinese regional industrial systems. By decomposing the efficiency into production efficiency and abatement efficiency, the proposed model can estimate the efficiencies of the whole regional industrial system, its production stage and abatement stage simultaneously. The model provides a way of improving performance of a regional industrial system through identifying its inefficient internal stages. This can help to find out the main sources of the inefficiency that arise from the internal stages within the system, which cannot be done by using conventional environmental data envelopment analysis models. Findings resulting from the model application show that there are great disparities in regional industrial systemsʹ efficiencies, and the inefficiency of Chinese industrial system is largely driven by the abatement stage.