A Hierarchical Aggregation Approach for Indicators Based on Data Envelopment Analysis and Analytic Hierarchy Process

Abstract: This research proposes a hierarchical aggregation approach using Data Envelopment Analysis (DEA) and Analytic Hierarchy Process (AHP) for indicators. The core logic of the proposed approach is to reflect the hierarchical structures of indicators and their relative priorities in constructing composite indicators (CIs), simultaneously. Under hierarchical structures, the indicators of similar characteristics can be grouped into sub-categories and further into categories. According to this approach, we define a domain of composite losses, i.e., a reduction in CI values, based on two sets of weights. The first set represents the weights of indicators for each Decision Making Unit (DMU) with the minimal composite loss, and the second set represents the weights of indicators bounded by AHP with the maximal composite loss. Using a parametric distance model, we explore various ranking positions for DMUs while the indicator weights obtained from a three-level DEA-based CI model shift towards the corresponding weights bounded by AHP. An illustrative example of road safety performance indicators (SPIs) for a set of European countries highlights the usefulness of the proposed approach.