Applied cost allocation: the DEA–Aumann–Shapley approach

Peter Bogetoft; Jens Leth Hougaard; Aleksandrs Smilgins

doi:10.1016/j.ejor.2016.04.023

Applied cost allocation: the DEA–Aumann–Shapley approach

Peter Bogetoft, Jens Leth Hougaard, Aleksandrs Smilgins

Section for Production, Markets and Policy

6 Citations (Scopus)

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 language	English
Journal	European Journal of Operational Research
Volume	254
Issue number	2
Pages (from-to)	667–678
Number of pages	12
ISSN	0377-2217
DOIs	https://doi.org/10.1016/j.ejor.2016.04.023
Publication status	Published - 16 Oct 2016

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title = "Applied cost allocation: the DEA–Aumann–Shapley approach",

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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T1 - Applied cost allocation

T2 - the DEA–Aumann–Shapley approach

AU - Bogetoft, Peter

AU - Hougaard, Jens Leth

AU - Smilgins, Aleksandrs

PY - 2016/10/16

Y1 - 2016/10/16

N2 - 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.

AB - 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.

U2 - 10.1016/j.ejor.2016.04.023

DO - 10.1016/j.ejor.2016.04.023

M3 - Journal article

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SP - 667

EP - 678

JO - European Journal of Operational Research

JF - European Journal of Operational Research

IS - 2

ER -

Applied cost allocation: the DEA–Aumann–Shapley approach

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