Centralized Resource Allocation Based on the Bargaining Approach

Abstract

In a centralized decision-making environment, the central unit supervises all the operating units’ production activities and focuses on achieving the overall goals of the entire organization from a global viewpoint by allocating available resources to them. However, all the current models about resource allocation under the centralized decision-making commonly exhibit the non-unique optimal solutions and neglect the competition and trade-off among all the DMUs to maximize the individual aggregated output of each DMU. This phenomenon makes the allocation result imbalanced and unacceptable to all the DMUs. To overcome this problem, this paper introduces Nash bargaining game theory to develop a new centralized resource allocation model which not only takes into account the overall goals of the organization from an overall perspective, but also considers competition and trade-off among all the DMUs. Finally, an empirical example is used to demonstrate the applicability of our proposed approach. The results show that our Nash bargaining game model not only guarantees the uniqueness of the optimal resource allocation results, but also improves the balance of the resource allocation result, which makes it acceptable to all the DMUs.