Abstract
Understanding input substitution and output transformation possibilities is
critical for efficient resource allocation and firm strategy. There are
important examples of fixed proportion technologies where certain inputs are
non-substitutable and/or certain outputs are non-transformable. However, there
is widespread confusion about the appropriate modeling of fixed proportion
technologies in data envelopment analysis. We point out and rectify several
misconceptions in the existing literature, and show how fixed proportion
technologies can be correctly incorporated into the axiomatic framework. A
Monte Carlo study is performed to demonstrate the proposed solution.