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Jumping the hurdles for collaboration: fairness in operations pooling in the absence of transfer payments

  • LAMAS, ALEJANDRO

    ()

    (Université catholique de Louvain, CORE and Louvain School of Management, Belgium)

  • CHEVALIER, Philippe

    ()

    (niversité catholique de Louvain, CORE and Louvain School of Management, Belgium)

Independent firms may be interested in collaborative alliances in order to reduce their costs and risks, among others benefits. Particularly in operations, different firms can gain from economies of scale by pooling their production resources. Even though there may be a significant reduction of the overall cost, the success of the partnership may generally depend on the fairness of the agreement. With this in mind, the firms can utilize transfer payments with the aim to achieve a balanced allocation of benefits. The implementation of such payments, however, could be difficult in practice, because of the presence of legal constraints or additional contracts that make such agreements more complicated. Therefore, the partners should jointly plan operations as to deal with the trade-off between the efficiency and the fairness. We propose a novel methodology to guide joint operations based on the Rawls’ theory of justice, such that we prioritize improving the firm that tends to benefit less from the collaboration. When comparing the quality of such approach with other notions of fairness, we pay particular attention to the effect of the uncertainty on the collaboration. We prove that agreements based on basic notions of fairness have a positive impact on the risk reduction of the firms. Furthermore, our numerical results show that the firms can reduce even more their risk when the agreement is based on more advanced notions of fairness. In particular, our proposed methodology outperforms other approaches of collaboration in terms of risk, while the efficiency is not significantly damaged.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013073.

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Date of creation: 31 Dec 2013
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Handle: RePEc:cor:louvco:2013073
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