Scale elasticity and technical efficiency analysis in the European forest sector: a stochastic value-based approach

This paper is the first to examine both technical efficiency and scale elasticity of the forest sector across different European (EU) regions in an uncertain environment. In doing so, a dataset from 29 EU forest sectors have been collected; where the input and output data have been assumed to be random while their prices (or importance weights) were known. A chance-constrained data envelopment analysis approach was derived from several directional value-based models aimed at evaluating technical efficiency in the first stage. The results indicated that the number of efficient EU forest sectors were reduced substantially with extremely weak efficiency dispersion (about 18%), and the total average technical efficiency scores were moderately reduced by 0.74 as well. However, in the second stage, the findings of the modified cost/revenue-based scale elasticity model interestingly revealed that almost 7% of the EU forest sectors are in increasing returns to scale regions, which means they are still attractive acquisition targets and have the opportunity to increase the level of outputs and shift to the fully efficient border and finally increase their overall efficiency. As the major conclusion, all of our applied stochastic data envelopment analysis models (specially the cost/revenue-based approach) have high discriminating power in order to clearly distinguish the efficiency of the EU forest sector.