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

Qingxian An; Ping Wang; Ali Emrouznejad; Junhua Hu

doi:10.1016/j.ejor.2019.11.031

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 journal › Article › peer-review

47 Citations (SciVal)

56 Downloads (Pure)

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 language	English
Pages (from-to)	662-675
Number of pages	14
Journal	European Journal of Operational Research
Volume	283
Issue number	2
Early online date	20 Nov 2019
DOIs	https://doi.org/10.1016/j.ejor.2019.11.031
Publication status	Published - 1 Jun 2020

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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10.1016/j.ejor.2019.11.031

Fixed cost allocation based on the principle
© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 2.12 MBLicence: CC BY-NC-ND 3.0

Cite this

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title = "Fixed cost allocation based on the principle of efficiency invariance in two-stage systems",

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.",

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AU - An, Qingxian

AU - Wang, Ping

AU - Emrouznejad, Ali

AU - Hu, Junhua

N1 - © 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).

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N2 - 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.

AB - 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.

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

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