Aggregation Bias in Benchmarking: Measuring Potential Process Efficiency

This paper shows that the use of excessively aggregated organizational units in a benchmarking study may skew the evaluation. The most aggregated or consolidated units receive excessively harsh evaluations. The paper also proposes a method for compensating the possible consolidation bias by calculating the so-called Potential Process Efficiency PPE. Finally,the paper applies the proposed method to the benchmarking model used by the Brazilian Electricity Regulatory Agency (ANEEL). Because of the size of the Brazilian DSOs and the heterogeneity of their service areas, it is highly likely that many of the DSOs are in fact subject to biased evaluations.