Economic evaluation of potential improvement in two-stage network data envelopment analysis: a case study in the banking sector

¹ Research Center for International Business and Economy, Sichuan International Studies University, Chongqing 400031, P.R. China
² Department of Mathematics, College of Science, Sultan Qaboos University, Al-Khod 123, Muscat, Oman
³ Department of Mathematics, Karaj Branch, Islamic Azad University, Karaj, Iran

^* Corresponding author: r.matin@squ.edu.om

Received: 5 January 2024
Accepted: 22 October 2024

Abstract

This paper investigates the concept of potential improvement within two-stage network data envelopment analysis (DEA) models, with a focus on its application in the banking sector. Network DEA, which evaluates the internal structure of decision-making units (DMUs), is instrumental in assessing operational efficiency within complex networks. Our study provides a detailed review of these methodologies and explores the concept of normalized potential improvement (NPI), specifically extending it to two-stage network production processes. We conduct a comparative analysis of both radial Farrell and non-radial NPI approaches to offer a comprehensive evaluation. To illustrate the practical application of these concepts, we assess the performance of 35 bank branches operating within two-stage structures. The objective is to provide insights aimed at optimizing efficiency in the banking sector from an economic standpoint.