An Explanation for the Paradox Phenomenon in Taiwan’s Bank Performances

Abstract

A traditional DEA (data envelopment analysis) model is useful for estimating the best performances for a successful and a more efficiency DMU (decision-making unit). This study uses a traditional DEA model to estimate the efficiency score of bank z in Taiwan and get a good efficiency score based on the 2006 data, however the bank z was taken over by the government in early 2007. In illustrating this paradox phenomenon, the study reconsiders the tradition DEA model by contributing a worst-practice frontier under a traditional DEA model. Findings: the bank z is located on the intersection of the worst-practice frontier and the traditional DEA model frontier. This study provides a critical determinant of a bank’s failure that a bank has a location such as the bank z.