Allocating fixed costs and budgets by using Data Envelopment Analysis

Fixed costs or common budgets often exist in numerous economic contexts which must be allocated among the entities making up an organization. Let’s say this is the case of a university that has to share a certain amount of money to buy equipment (microscopes, software, etc.) among the different degree courses. The dilemma facing the manager in charge is how to allocate the budget fairly among the entities involved. This problem has already been taken on previously, from the perspective of Data Envelopment Analysis (DEA). Two conceptually different approaches, one having as reference the work of Cook and Kress [8], and the other that of Beasley [3], are until now presented as the sole alternatives in equitable cost allocation using DEA. Within this context we will present a new model with the same objectives as the previous ones, leading to allocations possessing good properties and easy calculations. Our sharing rule will be compared to existing ones, and the differences between them examined using an example taken from literature. Finally, the validity of the new method will be checked by solving an actual allocation problem in a university extracted from Pulido et al. [15].