Fixed Cost Allocation in the Presence of Undesirable Outputs in DEA

Abstract

In this paper, we present a fixed cost allocation plan based on a Directional Distance Function (DDF) model in the presence of undesirable outputs in Data Envelopment Enalysis (DEA). The use of a DDF help for the accommodation of undesirable indicators in their original form. We propose a fixed cost allocation based on the the principle of full-efficient mechanism. This approach guarantees that the efficiency scores of Decision-Making Units (DMUs) will be equql to one after the allocation of fixed cost. By choosing different direction vectors, we can flexibly change the fixed cost allocation plan and the cost allocated to the units will also change. The proposed fixed cost allocation plan allocated cost among efficient and inefficient units. We illustrate the results of the proposed approach with a numerical example, and the results of the models are presented.