Robust location of new housing developments using a choice model

Juan Carlos Espinoza Garcia () and Laurent Alfandari ()
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Juan Carlos Espinoza Garcia: ESSEC Business School
Laurent Alfandari: ESSEC Business School

Annals of Operations Research, 2018, vol. 271, issue 2, No 10, 527-550

Abstract: Abstract We consider the issue of choosing a subset of locations to construct new housing developments maximizing the satisfaction of potential buyers, which has not been previously studied in the literature. The allocation of demands to the selected locations is modeled by a choice model, based on the distance to the location, real-estate prices and incomes. We study two robust counterparts of the optimal location problem, where uncertainty lies on demand volumes for the first one, and on customer preferences for the second one. In both cases, the parameters subject to uncertainty appear both in the objective function and constraints. The second robust model combines a scenario-based approach with nominal, price-centric and distance-centric scenarios on customers preferences, and an uncertainty budget approach that limits the number of customers that can deviate from the nominal scenario. We show that the subproblem of finding the worst-case deviation of parameters subject to uncertainty is tractable and leads to linear formulations of the robust problem. Computational experiments conducted on instances of the Paris region show that the average loss of value of the robust solution is reasonably low when compared to the optimal solution of deviated instances. We also derive insights for the new housing development issue.

Keywords: Robust Optimization; Multinomial logit choice models; Facility location; Housing (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10479-017-2750-6

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