Proportional sharing and DEA in allocating the fixed cost

This paper investigates the relationship between the proportional sharing method and DEA technology in solving the problem of allocating the fixed cost of a jointly used common platform among its users. It first examines the basic concept of equity of the proportional sharing method in the one dimensional case which motivates the analysis and extends proportional sharing to the general multiple-input multiple-output case. Then, it has proven that the necessary and sufficient condition for the existence of the proportional sharing is that all users can be DEA efficient with a common set of weights. Furthermore, this paper investigates the relationship between the extended proportional sharing method and some other DEA-based allocation approaches. Based upon these theoretical foundations, this paper proposes an alternative cost allocation approach, and applies it to a data set from prior DEA literature. Crown Copyright (C) 2013 Published by Elsevier Inc. All rights reserved.