DEA‐based centralized resource allocation with network flows

Abstract

AbstractThis study investigates the centralized resource allocation problem among individual units using network flow theory in a data envelopment analysis (DEA) framework. Existing research on DEA‐based resource allocation is primarily concerned with the amount of allocated resources to individual units, and only a few studies have considered resource flows when resources are allocated. To identify the internal structure of the resource allocation process, network structure is introduced and network flow theory is used to search for the optimal resource allocation scheme. Moreover, resource allocation cost is considered in network flows and a resource allocation gain (RAG) function is formulated to provide a quantitative analysis of the trade‐off between production gains from resource allocation and resource allocation cost in the resource allocation process. In addition, several characteristics of the RAG function are also discussed. Lastly, the proposed method is demonstrated through an expository example with several random data and an application of the centralized resource reallocation to bank systems.