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Fixed costs and shared resources allocation in two-stage network DEA

Author

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  • Weiwei Zhu

    (Nanjing University of Posts and Telecommunications)

  • Qian Zhang

    (Nanjing Audit University
    Worcester Polytechnic Institute)

  • Haiqing Wang

    (Nanjing University of Posts and Telecommunications)

Abstract

Data envelopment analysis (DEA) is an approach for performance evaluation and benchmarking. In many real managerial decisions, fixed costs are used in building common facilities used by an entire organization, and need to be shared by sub-components in decision-making units (DMUs). The current paper discusses the problem of fixed cost allocation when DMUs are composed of two linked stages. We develop a set of DEA models to measure the performance by treating fixed cost as an additional input factor shared in two stages among a set of DMUs. We propose three procedures based on different objectives in reality to obtain a fair cost allocation plan. The models are developed under the assumption when the DEA best-practice is of the constant returns to scale, but can be readily applied under the assumption of the variable return to scale (VRS). The proposed models are illustrated using a randomly generated data set.

Suggested Citation

  • Weiwei Zhu & Qian Zhang & Haiqing Wang, 2019. "Fixed costs and shared resources allocation in two-stage network DEA," Annals of Operations Research, Springer, vol. 278(1), pages 177-194, July.
    • Handle: RePEc:spr:annopr:v:278:y:2019:i:1:d:10.1007_s10479-017-2599-8
    DOI: 10.1007/s10479-017-2599-8
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    References listed on IDEAS

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    Cited by:

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    5. N. Torabi Golsefid & M. Salahi, 2023. "An SOCP approach to a two-stage network DEA with feedbacks and shared resources," OPSEARCH, Springer;Operational Research Society of India, vol. 60(3), pages 1153-1178, September.
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    7. An, Qingxian & Wang, Ping & Emrouznejad, Ali & Hu, Junhua, 2020. "Fixed cost allocation based on the principle of efficiency invariance in two-stage systems," European Journal of Operational Research, Elsevier, vol. 283(2), pages 662-675.
    8. An, Qingxian & Tao, Xiangyang & Xiong, Beibei & Chen, Xiaohong, 2022. "Frontier-based incentive mechanisms for allocating common revenues or fixed costs," European Journal of Operational Research, Elsevier, vol. 302(1), pages 294-308.

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