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A fixed cost allocation based on the two-stage network data envelopment approach

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  • Yu, Ming-Miin
  • Chen, Li-Hsueh
  • Hsiao, Bo

Abstract

The conventional paradigm of resource allocation model in single-stage data envelopment analysis (DEA) assumes that no internal structure is in production process. However, this paradigm does not consider that subunits may jointly use some fixed inputs from their organization, hence the importance of allocating fixed costs among subunits. Furthermore, in the fixed cost allocation problem, many studies use conventional DEA principles and produce self-evaluation efficiency scores. However, fixed cost allocation may contribute to each of sub-processes simultaneously. This study proposes an alternative approach to fixed cost allocation based on the two-stage network DEA (NDEA) and the concept of cross-efficiency. The study presents a numerical example to illustrate the applicability of the method. The results show that if two decision-making units (DMUs) have similar output profiles, the DMU with higher input values receives less fixed cost, whereas if two DMUs have similar input profiles, the DMU with higher output values receives more fixed cost. This study contributes in creating a novel approach to show how to allocate adequately the fixed cost to all DMUs when considering efficiency.

Suggested Citation

  • Yu, Ming-Miin & Chen, Li-Hsueh & Hsiao, Bo, 2016. "A fixed cost allocation based on the two-stage network data envelopment approach," Journal of Business Research, Elsevier, vol. 69(5), pages 1817-1822.
    • Handle: RePEc:eee:jbrese:v:69:y:2016:i:5:p:1817-1822
    DOI: 10.1016/j.jbusres.2015.10.062
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    3. Xi Jin & Bin Zou & Chan Wang & Kaifeng Rao & Xiaowen Tang, 2019. "Carbon Emission Allocation in a Chinese Province-Level Region Based on Two-Stage Network Structures," Sustainability, MDPI, vol. 11(5), pages 1-24, March.
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    7. Li, Feng & Zhu, Qingyuan & Chen, Zhi, 2019. "Allocating a fixed cost across the decision making units with two-stage network structures," Omega, Elsevier, vol. 83(C), pages 139-154.
    8. Yu, Ming-Miin & Chen, Li-Hsueh & Hsiao, Bo, 2018. "A performance-based subsidy allocation of ferry transportation: A data envelopment approach," Transport Policy, Elsevier, vol. 68(C), pages 13-19.
    9. Xiong, Xi & Yang, Guo-liang & Zhou, De-qun & Wang, Zi-long, 2022. "How to allocate multi-period research resources? Centralized resource allocation for public universities in China using a parallel DEA-based approach," Socio-Economic Planning Sciences, Elsevier, vol. 82(PB).
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    11. Qingxian An & Ping Wang & Honglin Yang & Zongrun Wang, 2021. "Fixed cost allocation in two-stage system using DEA from a noncooperative view," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 43(4), pages 1077-1102, December.
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