Proposing a method for fixed cost allocation using DEA based on the efficiency invariance and common set of weights principles

Gholam Reza Jahanshahloo (), Jafar Sadeghi () and Mohammad Khodabakhshi ()
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Gholam Reza Jahanshahloo: Kharazmi University
Jafar Sadeghi: Kharazmi University
Mohammad Khodabakhshi: Shahid Beheshti University, G.C.

Mathematical Methods of Operations Research, 2017, vol. 85, issue 2, No 4, 223-240

Abstract: Abstract One of the applications of data envelopment analysis is fixed costs allocation among homogenous decision making units. In this paper, we first prove that Beasley’s method (Eur J Oper Res 147(1):198–216, 2003), whose infeasibility has been claimed by Amirteimoori and Kordrostami (Appl Math Comput 171(1):136–151, 2005), always has a feasible solution and the efficiency invariance principle does not necessarily satisfy in Amirteimoori and Kordrostami’s method (Appl Math Comput 171(1):136–151, 2005). Hence, we present two equitable methods for fixed cost allocation based on the efficiency invariance and common set of weights principles such that, if possible, they help meet these two principles. In the first method, the costs are allocated to DMU in such a way that the efficiency score of DMUs does not change, and simultaneously this allocation has the minimum distance from the allocation that has been obtained with a common set of weights. However, in the second method, the costs are allocated in such a way that input and output of all units have a common set of weights and it has the minimum distance from the allocation that satisfies the efficiency invariance principle. Moreover, both methods, consider the satisfaction of each unit of the allocated cost. Finally, the proposed method is illustrated by two real world examples.

Keywords: Data envelopment analysis; Fixed cost allocation; Efficiency invariance; Common set of weights (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s00186-016-0563-z

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