IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v58y2012i12p2234-2250.html
   My bibliography  Save this article

On the Efficiency-Fairness Trade-off

Author

Listed:
  • Dimitris Bertsimas

    (MIT Sloan School of Management and Operations Research Center, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

  • Vivek F. Farias

    (MIT Sloan School of Management and Operations Research Center, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)

  • Nikolaos Trichakis

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

Abstract

This paper deals with a basic issue: How does one approach the problem of designing the "right" objective for a given resource allocation problem? The notion of what is right can be fairly nebulous; we consider two issues that we see as key: efficiency and fairness. We approach the problem of designing objectives that account for the natural tension between efficiency and fairness in the context of a framework that captures a number of resource allocation problems of interest to managers. More precisely, we consider a rich family of objectives that have been well studied in the literature for their fairness properties. We deal with the problem of selecting the appropriate objective from this family. We characterize the trade-off achieved between efficiency and fairness as one selects different objectives and develop several concrete managerial prescriptions for the selection problem based on this trade-off. Finally, we demonstrate the value of our framework in a case study that considers air traffic management. This paper was accepted by Yossi Aviv, operations management.

Suggested Citation

  • Dimitris Bertsimas & Vivek F. Farias & Nikolaos Trichakis, 2012. "On the Efficiency-Fairness Trade-off," Management Science, INFORMS, vol. 58(12), pages 2234-2250, December.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:12:p:2234-2250
    DOI: 10.1287/mnsc.1120.1549
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1120.1549
    Download Restriction: no

    File URL: https://libkey.io/10.1287/mnsc.1120.1549?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-518, May.
    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. Yaozhong Wu & Christoph H. Loch & Ludo Van der Heyden, 2008. "A Model of Fair Process and Its Limits," Manufacturing & Service Operations Management, INFORMS, vol. 10(4), pages 637-653, June.
    4. A. Federgruen & H. Groenevelt, 1988. "M/G/c Queueing Systems with Multiple Customer Classes: Characterization and Control of Achievable Performance Under Nonpreemptive Priority Rules," Management Science, INFORMS, vol. 34(9), pages 1121-1138, September.
    5. Wagstaff, Adam, 1991. "QALYs and the equity-efficiency trade-off," Journal of Health Economics, Elsevier, vol. 10(1), pages 21-41, May.
    6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    7. Cynthia Barnhart & Dimitris Bertsimas & Constantine Caramanis & Douglas Fearing, 2012. "Equitable and Efficient Coordination in Traffic Flow Management," Transportation Science, INFORMS, vol. 46(2), pages 262-280, May.
    8. Xuanming Su & Stefanos Zenios, 2004. "Patient Choice in Kidney Allocation: The Role of the Queueing Discipline," Manufacturing & Service Operations Management, INFORMS, vol. 6(4), pages 280-301, June.
    9. Mor Armony & Amy R. Ward, 2010. "Fair Dynamic Routing in Large-Scale Heterogeneous-Server Systems," Operations Research, INFORMS, vol. 58(3), pages 624-637, June.
    10. Dimitrios Bisias & Andrew W Lo & James F Watkins, 2012. "Estimating the NIH Efficient Frontier," PLOS ONE, Public Library of Science, vol. 7(5), pages 1-10, May.
    11. 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.
    12. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    13. Dimitris Bertsimas & Sarah Stock Patterson, 1998. "The Air Traffic Flow Management Problem with Enroute Capacities," Operations Research, INFORMS, vol. 46(3), pages 406-422, June.
    14. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    15. Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975.
    16. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2007. "Fairness and Channel Coordination," Management Science, INFORMS, vol. 53(8), pages 1303-1314, August.
    17. Dimitris Bertsimas & Vivek F. Farias & Nikolaos Trichakis, 2011. "The Price of Fairness," Operations Research, INFORMS, vol. 59(1), pages 17-31, February.
    18. Xuanming Su & Stefanos A. Zenios, 2006. "Recipient Choice Can Address the Efficiency-Equity Trade-off in Kidney Transplantation: A Mechanism Design Model," Management Science, INFORMS, vol. 52(11), pages 1647-1660, November.
    19. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309-309.
    20. Lensberg, Terje, 1988. "Stability and the Nash solution," Journal of Economic Theory, Elsevier, vol. 45(2), pages 330-341, August.
    Full references (including those not matched with items on IDEAS)

    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. Dimitris Bertsimas & Vivek F. Farias & Nikolaos Trichakis, 2011. "The Price of Fairness," Operations Research, INFORMS, vol. 59(1), pages 17-31, February.
    2. Karsu, Özlem & Morton, Alec, 2015. "Inequity averse optimization in operational research," European Journal of Operational Research, Elsevier, vol. 245(2), pages 343-359.
    3. Lars Schwettmann, 2012. "Competing allocation principles: time for compromise?," Theory and Decision, Springer, vol. 73(3), pages 357-380, September.
    4. Agnetis, Alessandro & Chen, Bo & Nicosia, Gaia & Pacifici, Andrea, 2019. "Price of fairness in two-agent single-machine scheduling problems," European Journal of Operational Research, Elsevier, vol. 276(1), pages 79-87.
    5. Alexandre Jacquillat & Vikrant Vaze, 2018. "Interairline Equity in Airport Scheduling Interventions," Transportation Science, INFORMS, vol. 52(4), pages 941-964, August.
    6. Ye, Qing Chuan & Zhang, Yingqian & Dekker, Rommert, 2017. "Fair task allocation in transportation," Omega, Elsevier, vol. 68(C), pages 1-16.
    7. Nicosia, Gaia & Pacifici, Andrea & Pferschy, Ulrich, 2017. "Price of Fairness for allocating a bounded resource," European Journal of Operational Research, Elsevier, vol. 257(3), pages 933-943.
    8. Hrayer Aprahamian & Douglas R. Bish & Ebru K. Bish, 2019. "Optimal Risk-Based Group Testing," Management Science, INFORMS, vol. 65(9), pages 4365-4384, September.
    9. 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.
    10. Kotaro Suzumura, 2002. "Introduction to social choice and welfare," Temi di discussione (Economic working papers) 442, Bank of Italy, Economic Research and International Relations Area.
    11. Liu, Songsong & Papageorgiou, Lazaros G., 2018. "Fair profit distribution in multi-echelon supply chains via transfer prices," Omega, Elsevier, vol. 80(C), pages 77-94.
    12. Omer F. Baris, 2018. "Timing effect in bargaining and ex ante efficiency of the relative utilitarian solution," Theory and Decision, Springer, vol. 84(4), pages 547-556, June.
    13. Che-Yuan Liang, 2017. "Optimal inequality behind the veil of ignorance," Theory and Decision, Springer, vol. 83(3), pages 431-455, October.
    14. Jamie Fairbrother & Konstantinos G. Zografos & Kevin D. Glazebrook, 2020. "A Slot-Scheduling Mechanism at Congested Airports that Incorporates Efficiency, Fairness, and Airline Preferences," Transportation Science, INFORMS, vol. 54(1), pages 115-138, January.
    15. Ursula F Ott & Pervez N Ghauri, 2019. "Brexit negotiations: From negotiation space to agreement zones," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(1), pages 137-149, February.
    16. Gur, Yonatan & Iancu, Dan & Warnes, Xavier, 2020. "Value Loss in Allocation Systems with Provider Guarantees," Research Papers 3813, Stanford University, Graduate School of Business.
    17. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2002. "Removing the Veil of Ignorance in Assessing the Distributional Impacts of Social Policies," NBER Working Papers 8840, National Bureau of Economic Research, Inc.
    18. Rachmilevitch, Shiran, 2015. "Nash bargaining with (almost) no rationality," Mathematical Social Sciences, Elsevier, vol. 76(C), pages 107-109.
    19. Amartya K. Sen, 1997. "From Income Inequality to Economic Inequality," Southern Economic Journal, John Wiley & Sons, vol. 64(2), pages 384-401, October.
    20. Marco Mariotii, 1996. "Fair bargains: distributive justice and Nash Bargaining Theory," Game Theory and Information 9611003, University Library of Munich, Germany, revised 06 Dec 1996.

    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:inm:ormnsc:v:58:y:2012:i:12:p:2234-2250. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    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.