Enhanced capacitated facility location problem for mental accounting management using partial resource concentration

Luohao Tang () and Dexiang Wu ()
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Luohao Tang: National University of Defense Technology
Dexiang Wu: Beihang University

Annals of Operations Research, 2024, vol. 335, issue 1, No 15, 385-424

Abstract: Abstract This paper studies a framework of Reliable Capacitated Facility Location Problem with Single source constraint, which allows us to capture the mental account management problem for a bank under uncertain environment. In the problem, each facility, corresponding to a financial product, has limited capacity and may fail randomly, which represents that the product fails to reach the threshold level of return. Each customer, corresponding to a mental account, is served by a single primary facility or product, and its demands, or the setting goals, can be split on several backup facilities or alternative investments with redundant capacity. With the operation, a portion of the satisfaction can still be met by the backup facilities when the primary service of a customer fails. We formulate a mixed integer programming model for the problem and design a Lagrangian relaxation based solution algorithm, which sophisticatedly exploits the structure of the model and transfers the complicated relaxation problems into 0–1 knapsack problems to reduce the complexity. A local search procedure is also incorporated into the algorithm to enhance the accuracy of small- and large-scale computation. Finally, a real-life case of mental accounting is investigated to illustrate the application of the decision model.

Keywords: Risk management; Mental accounting; Capacitated facility location problem; Single source constraint; Lagrangian relaxation; Local search (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10479-023-05572-3

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