Undesirable specialization in the construction of composite policy indicators: The Environmental Performance Index

The non-parametric Data Envelopment Analysis approach is increasingly used to construct composite indicators for country performance monitoring, benchmarking, and policy evaluation in a large variety of fields. The flexibility in the definition of aggregation weights is praised as the methodʹs most important advantage: DEA allows each evaluated country to look for its own optimal weights that maximize the composite indicator relative to the other countries. However, this flexibility also carries a potential disadvantage as it may allow countries to appear as a brilliant performer in a manner that is hard to justify: by ignoring or overemphasizing one or multiple of the judiciously selected performance indicators. To illustrate this issue of undesirable specialization in DEA-based evaluations, this paper compares the Environmental Performance Index (EPI) as computed by the optimistic and pessimistic version of the DEA-model as proposed by Zhou et al. (2007). Based on both computed composites, undesirable specialization in performance is identified.