Rating of Lihuanian forest enterprises: a dea approach

Abstract

Significant changes will take place in the Lithuanian forestry scenario under the forestry sector reform initiatives of the Government of Lithuania since the 2005s. As the country's forestry system, which is still dominated by the state forest enterprises, is on the threshold of the new millennium, efficiency issues are gradually emerging as the touchstone of success. There is an emergent need for a comprehensive framework for measuring efficiency of Lithuanian state forest enterprises. The present paper, based on empirical analysis, suggests that Data Envelopment Analysis (DEA) could be a suitable approach towards measuring the relative efficiency of forest enterprises in the Lithuanian forestry sector context. Charnes et al. (1978) developed the DEA approach based on the concept of technical efficiency of Farrel (1957). DEA in essence is a linear programming technique that converts multiple inputs and outputs into a scalar measure of efficiency. The concept of efficiency is primarily an engineering concept, concerned at the basic stage with measuring the value of (a single) output for a given level of input In a wider context, efficiency management is concerned with fuller utilization of available inputs to achieve an optimum mix of outputs within the boundaries of feasibility in operations. The present paper mainly deals with technical efficiency. A measure of efficiency provides a good indicator of the success in a competitive market. Efficiency indices could also be used to evaluate the impact of changes in regulation and in market conditions. The mechanism will also help forestry enterprises in identifying the areas of inefficiency and formulating suitable strategies to improve its relative position in the market. It can also provide a framework to the regulators to assess the health of individual enterprises and to work out appropriate interventions to prevent systemic failures.