Fixed cost allocation based on the principle of efficiency invariance in two-stage systems

Qingxian An, Ping Wang, Ali Emrouznejad, Junhua Hu

Research output: Contribution to journalArticle

Abstract

Fixed cost allocation among groups of entities is a prominent issue in numerous organisations. Addressing this issue has become one of the most important topics of the data envelopment analysis (DEA) methodology. In this study, we propose a fixed cost allocation approach for basic two-stage systems based on the principle of efficiency invariance and then extend it to general two-stage systems. Fixed cost allocation in cooperative and noncooperative scenarios are investigated to develop the related allocation plans for two-stage systems. The model of fixed cost allocation under the overall condition of efficiency invariance is first developed when the two stages have a cooperative relationship. Then, the model of fixed cost allocation under the divisional condition of efficiency invariance wherein the two stages have a noncooperative relationship is studied. Finally, the validation of the proposed approach is demonstrated by a real application of 24 nonlife insurance companies, in which a comparative analysis with other allocation approaches is included.
Original languageEnglish
JournalEuropean Journal of Operational Research
Early online date20 Nov 2019
DOIs
Publication statusE-pub ahead of print - 20 Nov 2019

Bibliographical note

© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Funding: National Natural Science Foundation of China (Nos. 71871223, 91846301, 71631008), Innovation‐Driven Planning Foundation of Central South University (2019CX041), Major Project for National Natural Science Foundation of China (71790615).

Keywords

  • Cooperative model
  • Data envelopment analysis
  • Efficiency invariance principle
  • Fixed cost allocation
  • Noncooperative model

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