An Additive Model for Estimation Return to Scale in Regulated Environment with Quasi-Fixed Inputs in Data Envelopment Analysis (DEA)

The measurement of RTS amounts measures a relationship between inputs and outputs in a production structure. There are many different ways to calculate RTS in primal or dual space. But in more realistic cases, governments usually intervene on DMU’s behavior as regulatory agency, this clearly represent a set of limitations and restrictions on behaviors of DMUs, So very few decisions in DMUs are made without intersecting some regulations. Therefore it is essential to be able to assess the impact of regulation on the behavior of the DMUs, and this would be ideally done by estimating returns to scale with and without the effect of the regulation. In this paper we use additive model to provide an alternative approach for estimating returns to scale in regulated environments. The proposed model is developed to determining returns to scale in the presence of quasi-fixed inputs in Data Envelopment Analysis.