Centralized fixed cost allocation for generalized two-stage network DEA

Abstract

ABSTRACTMany studies have dealt with the problem of fixed cost allocation by using data envelopment analysis. However, existing models allocate the fixed cost by treating the decision-making units (DMUs) as black-boxes and ignore the internal production structures of DMUs. To our knowledge, only a few work has considered the fixed cost allocation problem for an elementary two-stage production structure without external inputs and outputs. This paper deals with the fixed cost allocation problem for a general two-stage network production structure, in which both external inputs and outputs exist. Specifically, additive two-stage models are first presented to evaluate the performance for each DMU when allocating the fixed cost. Then, by introducing the concepts of satisfaction degree and fairness degree, we propose an approach to obtain an optimal allocation plan under the control of the centralized authority. Finally, an application to 27 banks is utilized to illustrate the proposed approach.