IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v197y2009i3p999-1011.html
   My bibliography  Save this article

A contribution to the linear programming approach to joint cost allocation: Methodology and application

Author

Listed:
  • Tehrani Nejad Moghaddam, Alireza
  • Michelot, Christian

Abstract

The linear programming (LP) approach has been commonly proposed for joint cost allocation purposes. Within a LP framework, the allocation rules are based on a marginal analysis. Unfortunately, the additivity property which is required to completely allocate joint costs fails in presence of capacity, institutional or environmental constraints. In this paper, we first illustrate that the non allocated part can be interpreted as a type of producer's surplus. Then, by using the information contained in the Simplex tableau we propose an original two-stage methodology based on the marginal costs and the production elasticity of input factors to achieve an additive cost allocation pattern. The distinguished feature of our approach is that it requires no more information or iterative computations than what is provided by the final Simplex tableau. A real-type refinery case study is provided.

Suggested Citation

  • Tehrani Nejad Moghaddam, Alireza & Michelot, Christian, 2009. "A contribution to the linear programming approach to joint cost allocation: Methodology and application," European Journal of Operational Research, Elsevier, vol. 197(3), pages 999-1011, September.
    • Handle: RePEc:eee:ejores:v:197:y:2009:i:3:p:999-1011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(08)00271-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Moulin, Herve, 2002. "Axiomatic cost and surplus sharing," Handbook of Social Choice and Welfare, in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 1, chapter 6, pages 289-357, Elsevier.
    2. M Butler & H P Williams, 2002. "Fairness versus efficiency in charging for the use of common facilities," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 53(12), pages 1324-1329, December.
    3. Young, H Peyton, 1985. "Producer Incentives in Cost Allocation," Econometrica, Econometric Society, vol. 53(4), pages 757-765, July.
    4. Butler, Martin & Williams, H. Paul, 2002. "Fairness versus efficiency in charging for the use of common facilities," LSE Research Online Documents on Economics 18399, London School of Economics and Political Science, LSE Library.
    5. Gregg Frasco & Chulho Jung, 2001. "When producer surplus underestimates rents," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(4), pages 393-405, December.
    6. Hiroyuki Itami & Robert S. Kaplan, 1980. "An Activity Analysis Approach to Unit Costing with Multiple Interactive Products," Management Science, INFORMS, vol. 26(8), pages 826-839, August.
    7. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    8. Lemaire, Jean, 1984. "An Application of Game Theory: Cost Allocation," ASTIN Bulletin, Cambridge University Press, vol. 14(1), pages 61-81, April.
    9. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, vol. 8(3), pages 325-343, April.
    10. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
    11. Bala V. Balachandran & Ram T. S. Ramakrishnan, 1996. "Joint Cost Allocation for Multiple Lots," Management Science, INFORMS, vol. 42(2), pages 247-258, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pierru, Axel, 2010. "Allocating the CO2 emissions of an oil refinery with Aumann-Shapley prices: A reply," Energy Economics, Elsevier, vol. 32(3), pages 746-748, May.
    2. Bugarinovic, Mirjana & Boskovic, Branislav, 2015. "A systems approach to access charges in unbundling railways," European Journal of Operational Research, Elsevier, vol. 240(3), pages 848-860.
    3. Wen-Hsien Tsai & Jui-Chu Chang & Chu-Lun Hsieh & Tsen-Shu Tsaur & Chung-Wei Wang, 2016. "Sustainability Concept in Decision-Making: Carbon Tax Consideration for Joint Product Mix Decision," Sustainability, MDPI, vol. 8(12), pages 1-22, November.
    4. Umed Temurshoev & Fréderic Lantz, 2016. "Long-term petroleum product supply analysis through a robust modelling approach," Working Papers 2016-003, Universidad Loyola Andalucía, Department of Economics.
    5. Klosterhalfen, Steffen T. & Kallrath, Josef & Frey, Markus M. & Schreieck, Anna & Blackburn, Robert & Buchmann, Jan & Weidner, Felix, 2019. "Creating cost transparency to support strategic planning in complex chemical value chains," European Journal of Operational Research, Elsevier, vol. 279(2), pages 605-619.
    6. Tehrani Nejad Moghaddam, Alireza, 2010. "Allocating the CO2 emissions of an oil refinery with Aumann-Shapley prices: Comment," Energy Economics, Elsevier, vol. 32(1), pages 243-255, January.
    7. Adedoyin Isola Lawal, 2014. "Tactical Assets Allocation: Evidence from the Nigerian Banking Industry," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(2), pages 193-204, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Klosterhalfen, Steffen T. & Kallrath, Josef & Frey, Markus M. & Schreieck, Anna & Blackburn, Robert & Buchmann, Jan & Weidner, Felix, 2019. "Creating cost transparency to support strategic planning in complex chemical value chains," European Journal of Operational Research, Elsevier, vol. 279(2), pages 605-619.
    2. Hervé Moulin & Yves Sprumont, 2007. "Fair allocation of production externalities : recent results," Revue d'économie politique, Dalloz, vol. 117(1), pages 7-36.
    3. Moulin, Herve & Sprumont, Yves, 2006. "Responsibility and cross-subsidization in cost sharing," Games and Economic Behavior, Elsevier, vol. 55(1), pages 152-188, April.
    4. Peyton Young, H., 1998. "Cost allocation, demand revelation, and core implementation," Mathematical Social Sciences, Elsevier, vol. 36(3), pages 213-228, December.
    5. Ibrahim Abada, Andreas Ehrenmann, and Xavier Lambin, 2020. "On the Viability of Energy Communities," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    6. Emin Karagözoğlu, 2014. "A noncooperative approach to bankruptcy problems with an endogenous estate," Annals of Operations Research, Springer, vol. 217(1), pages 299-318, June.
    7. Eric Friedman, 1997. "Paths in Additive Cost Sharing," Departmental Working Papers 199706, Rutgers University, Department of Economics.
    8. White, Leroy & Bourne, Humphrey, 2007. "Voices and values: Linking values with participation in OR/MS in public policy making," Omega, Elsevier, vol. 35(5), pages 588-603, October.
    9. Ibrahim Abada & Andreas Ehrenmann & Xavier Lambin, 2018. "Unintended consequences: The snowball effect of energy communities," Working Papers EPRG 1812, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    10. Holland, Luke M. & Doole, Graeme J., 2014. "Implications of fairness for the design of nitrate leaching policy for heterogeneous New Zealand dairy farms," Agricultural Water Management, Elsevier, vol. 132(C), pages 79-88.
    11. Welter, Dominik & Napel, Stefan, 2016. "Responsibility-based allocation of cartel damages," VfS Annual Conference 2016 (Augsburg): Demographic Change 145886, Verein für Socialpolitik / German Economic Association.
    12. Friedman, Eric & Moulin, Herve, 1999. "Three Methods to Share Joint Costs or Surplus," Journal of Economic Theory, Elsevier, vol. 87(2), pages 275-312, August.
    13. Dimitris Bertsimas & Vivek F. Farias & Nikolaos Trichakis, 2012. "On the Efficiency-Fairness Trade-off," Management Science, INFORMS, vol. 58(12), pages 2234-2250, December.
    14. Özlem Karsu & Hale Erkan, 2020. "Balance in resource allocation problems: a changing reference approach," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 42(1), pages 297-326, March.
    15. Koster, M., 2005. "Cost Sharing, Differential Games, and the Moulin-Shenker Rule," CeNDEF Working Papers 05-07, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    16. Friedman, Eric J., 2012. "Asymmetric Cost Sharing mechanisms," Games and Economic Behavior, Elsevier, vol. 75(1), pages 139-151.
    17. Pham, Ngoc Anh, 2019. "Lorenz comparison between Increasing serial and Shapley value cost-sharing rules," Economics Letters, Elsevier, vol. 179(C), pages 49-52.
    18. Albizuri, M.J. & Díez, H. & Sarachu, A., 2014. "Monotonicity and the Aumann–Shapley cost-sharing method in the discrete case," European Journal of Operational Research, Elsevier, vol. 238(2), pages 560-565.
    19. Moulin, Herve, 2002. "Axiomatic cost and surplus sharing," Handbook of Social Choice and Welfare, in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 1, chapter 6, pages 289-357, Elsevier.
    20. Josep Maria Izquierdo & Carlos Rafels, 2017. "The incentive core in co-investment problems," UB School of Economics Working Papers 2017/369, University of Barcelona School of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:197:y:2009:i:3:p:999-1011. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.