Decentralized decision-making and capacitated facility location

Abstract

Given a set of candidate sites, the capacitated location problem consists of finding a most economical subset of facilities to be located. This paper works with aweak formulation of the problem, having in mind the application in an economic sector with partially decentralized decision-making. The model considers the activities of production, transportation and export, looking for facility locations and distribution alternatives that satisfy the domestic demands, while minimizing the total cost. We have shown improved criteria to locate facilities, assured their optimality and given computational results. We introduce clear economic interpretation of such criteria for the decentralized behavior of the production and distribution agents, based on a pricing system associated with dual variables. Some insight is also given on the possibility of analyzing a location algorithm as a competitive and adaptive process of searching for maximal profit. Within such context, an attempt is made to define the role of government in handling the indivisibility of the production resources, in order to assure stability at an optimal solution.