Applied Cost Allocation

The DEA–aumann–shapley Approach

Peter Bogetoft, Jens Leth Hougaard, Aleksandrs Smilgins

Research output: Contribution to journalJournal articleResearchpeer-review

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Abstract

This paper deals with empirical computation of Aumann–Shapley cost shares for joint production. We show that if one uses a mathematical programing approach with its non-parametric estimation of the cost function there may be observations in the data set for which we have multiple Aumann–Shapley prices. We suggest to overcome such problems by using lexicographic goal programing techniques. Moreover, cost allocation based on the cost function is unable to account for differences between efficient and actual cost. We suggest to employ the notion of rational inefficiency in order to supply a set of assumptions concerning firm behavior. These assumptions enable us to connect inefficient with efficient production and thereby provide consistent ways of allocating the costs arising from inefficiency.
Original languageEnglish
JournalEuropean Journal of Operational Research
Volume254
Issue number2
Pages (from-to)667–678
ISSN0377-2217
DOIs
Publication statusPublished - 2016

Keywords

  • Cost allocation
  • Convex envelopment
  • Data envelopment analysis
  • Aumann–Shapley pricing
  • Inefficient joint production

Cite this

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abstract = "This paper deals with empirical computation of Aumann–Shapley cost shares for joint production. We show that if one uses a mathematical programing approach with its non-parametric estimation of the cost function there may be observations in the data set for which we have multiple Aumann–Shapley prices. We suggest to overcome such problems by using lexicographic goal programing techniques. Moreover, cost allocation based on the cost function is unable to account for differences between efficient and actual cost. We suggest to employ the notion of rational inefficiency in order to supply a set of assumptions concerning firm behavior. These assumptions enable us to connect inefficient with efficient production and thereby provide consistent ways of allocating the costs arising from inefficiency.",
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Applied Cost Allocation : The DEA–aumann–shapley Approach. / Bogetoft, Peter; Hougaard, Jens Leth; Smilgins, Aleksandrs.

In: European Journal of Operational Research, Vol. 254, No. 2, 2016, p. 667–678.

Research output: Contribution to journalJournal articleResearchpeer-review

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