Fair fixed cost allocation plan based on single-stage DEA model in the presence of production trade-offs
Keywords:
Data envelopment analysis, Fixed cost allocation, Production trade-offs, Preference information, Efficiency invariance principle.Abstract
In order to apply the decision maker’s preferred information in the fixed cost allocation process, the production trade-off method in data envelopment analysis (DEA) can be used. In this paper, we present a fair fixed cost allocation scheme among decision-making units (DMUs) in the presence of production trade-offs from inputs and outputs based on a single-stage DEA model. The model simultaneously considers the importance of inputs and outputs in the fixed cost allocation model. An algorithm is also presented for the fixed cost allocation scheme in the presence of production trade-offs based on the principle of efficiency invariance. In this algorithm, the fixed cost allocation to DMUs is a function of the efficiency scores, the scale of inputs and outputs, and the production trade-offs between their inputs and outputs. We apply the presented algorithm to allocate fixed costs to a set of refineries in Iran which operate under the same management.
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