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"Cost allocation"
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Cost Allocation Methods and Their Properties in Energy Communities
Energy communities enable prosumers to jointly operate distributed energy resources and thereby generate economic benefits that exceed those achievable individually. A central challenge in their implementation is selecting a Cost Allocation Method (CAM) that distributes these benefits fairly among heterogeneous participants. Although numerous CAMs have been proposed, they are often evaluated under different assumptions, making direct comparison difficult. This paper develops a unified axiomatic framework for assessing CAMs in energy communities and applies it to eight representative methods classified in three families: simple rules, savings-based, and price-based. The framework is built around seven desirable properties capturing principles of fairness, environmental friendliness, and continuity. Our main contribution is a comparative table that positions all methods within a single evaluative space and reveals the structural trade-offs that arise across CAMs. The analysis shows that the Average-Price CAM satisfies the same axiomatic properties as the Shapley method while remaining computationally trivial, making it an attractive practical option. We also show that the Extreme-Price CAM is the only price-based method that ensures the property of Beneficial Group Participation (core stability); however, this method violates other properties related to environmental friendliness and continuity—trade-offs we prove to be unavoidable for price-based rules. Finally, we conjecture that the nucleolus satisfies all seven properties, although its computation is rarely feasible in practice. The proposed framework provides researchers and practitioners with a transparent foundation for selecting and designing cost allocation methods in emerging energy communities.
Journal Article
Fixed costs and shared resources allocation in two-stage network DEA
Data envelopment analysis (DEA) is an approach for performance evaluation and benchmarking. In many real managerial decisions, fixed costs are used in building common facilities used by an entire organization, and need to be shared by sub-components in decision-making units (DMUs). The current paper discusses the problem of fixed cost allocation when DMUs are composed of two linked stages. We develop a set of DEA models to measure the performance by treating fixed cost as an additional input factor shared in two stages among a set of DMUs. We propose three procedures based on different objectives in reality to obtain a fair cost allocation plan. The models are developed under the assumption when the DEA best-practice is of the constant returns to scale, but can be readily applied under the assumption of the variable return to scale (VRS). The proposed models are illustrated using a randomly generated data set.
Journal Article
Contrary To Cost-Shift Theory, Lower Medicare Hospital Payment Rates For Inpatient Care Lead To Lower Private Payment Rates
Many policy makers believe that when Medicare constrains its payment rates for hospital inpatient care, private insurers end up paying higher rates as a result. I tested this \"cost-shifting\" theory using a unique new data set that combines MarketScan private claims data with Medicare hospital cost reports. Contrary to the theory, I found that hospital markets with relatively slow growth in Medicare inpatient hospital payment rates also had relatively slow growth in private hospital payment rates during 1995-2009. Using regression analyses, I found that a 10 percent reduction in Medicare payment rates led to an estimated reduction in private payment rates of 3 percent or 8 percent, depending on the statistical model used. These payment rate spillovers may reflect an effort by hospitals to rein in their operating costs in the face of lower Medicare payment rates. Alternatively, hospitals facing cuts in Medicare payment rates may also cut the payment rates they seek from private payers to attract more privately insured patients. My findings indicate that repealing cuts in Medicare payment rates would not slow the growth in spending on hospital care by private insurers and would in fact be likely to accelerate the growth in private insurers' costs and premiums. [PUBLICATION ABSTRACT]
Journal Article
Energy Resource Cost Accounting Method in Iron and Steel Industry Considering Production Process and Multiproduct Effect
The iron and steel industry is a major consumer of energy. Many companies are turning to energy efficiency technologies. Management innovation is also important in increasing efficiency. In this study, we focus on the rational cost accounting of energy medium products in an iron and steel plant. While most of these products are used internally, some of them can be sold to outside users. Therefore, fair and rational cost allocation for these products is crucial for recovering costs and maximizing profits. Unfortunately, there is currently a lack of a fair and rational cost accounting method. To address this issue, we propose a thermoeconomic‐based cost accounting method. We calculate the cost of six energy medium products for a model system. The cost of producing steel is found to be 2489.50 ¥/ton, while the costs for producing coke oven gas, converter gas, high‐pressure steam (HPS), middle‐pressure steam (MPS), low‐pressure steam (LPS), and electricity are 2.40 ¥/m3, 1.79 ¥/m3, 428 ¥/ton, 371 ¥/ton, 305 ¥/ton, and 1.36 ¥/kWh, respectively. Our analysis indicates that other models may underestimate the cost of energy medium products, which can hinder subplant energy efficiency analysis. Therefore, plant management should reconsider its cost accounting methods and develop a better pricing model.
Journal Article
Analysis of collaborative savings and cost allocation techniques for the cooperative carrier facility location problem
Transport companies may cooperate to increase their efficiency levels by, for example, the exchange of orders or vehicle capacity. In this paper a new approach to horizontal carrier collaboration is presented: the sharing of distribution centres (DCs) with partnering organisations. This problem can be classified as a cooperative facility location problem and formulated as an innovative mixed integer linear programme. To ensure cooperation sustainability, collaborative costs need to be allocated fairly to the different participants. To analyse the benefits of cooperative facility location and the effects of different cost allocation techniques, numerical experiments based on experimental design are carried out on a UK case study. Sharing DCs may lead to significant cost savings up to 21.6%. In contrast to the case of sharing orders or vehicles, there are diseconomies of scale in terms of the number of partners and more collaborative benefit can be expected when partners are unequal in size. Moreover, results indicate that horizontal collaboration at the level of DCs works well with a limited number of partners and can be based on intuitively appealing cost sharing techniques, which may reduce alliance complexity and enforce the strength of mutual partner relationships.
Journal Article
Fixed cost allocation in two-stage system using DEA from a noncooperative view
This paper uses the data envelopment analysis (DEA) approach to solve the issue of allocating fixed costs among a set of decision-making units (DMUs) with two-stage network structure. Fixed cost allocation is a prominent issue that is encountered by organizations, and it is one of the most important applications of DEA. It exists not only in single-stage systems but in two-stage network systems, such as bank systems in real situations, which comprises the deposits process and lending process. However, branch banks often compete with one another out of self-interest. The objective of this paper is to design a fair allocation scheme for two-stage network systems and considering the noncooperative game relationship among DMUs. The idea of satisfaction degree and noncooperative game theory is integrated into the proposed allocation model. In the noncooperative framework, we define a DMU’s payoff as the product of two substage satisfaction degree, and every member is noncooperative and selfishly seeks to maximize its own payoff. The allocation plan to DMUs and substages is determined by the final competition payoff. A real case is analyzed to illustrate the applicability of the proposed approaches.
Journal Article
A simple and efficient method to allocate costs and benefits in energy communities
Purpose: Define a simple and efficient method to allocate costs and benefits in energy communities, and characterize some of its key properties.Design/methodology/approach: The approach is theoretical. We define an algorithm to allocate costs and benefits in energy communities, and derive some of its formal properties using mathematical reasoning. We also compare the proposed algorithm with several alternatives.Findings: The proposed algorithm is simple and it ensures that the resulting distribution of costs and benefits is (i) beneficial for every member of the community, (ii) efficient, (iii) fair (in a formally defined sense), (iv) smooth (small changes in the consumption or in the generation of energy cannot lead to big changes in the allocation of costs and benefits), and (v) environmentally friendly in the sense that the individual allocated cost is a strictly increasing function of individual consumption.Research limitations/implications: The properties of the proposed algorithm are satisfied for a specific type of energy community that is defined in the manuscript. Practical implications: The algorithm is easy to implement in any energy community.Social implications: The algorithm is highly relevant for any community of prosumers who are willing to exchange energy internally. It guarantees a number of desirable properties that are formally defined in the paper.Originality/value: We prove that a simple algorithm to allocate costs and benefits in energy communities guarantees the fulfilment of several desirable properties.
Journal Article
DEA-based proportional-sharing fixed cost allocation considering bi-objective optimization
This paper proposes a new proportional-sharing approach for fixed cost allocation (FCA) among a group of decision-making units (DMUs) based on data envelopment analysis (DEA). We first prove the proportional invariance in DEA-based FCA. Then, we show that the “all-efficient” assumption in existing models usually leads to the use of unrealistic weights in efficiency analysis. To address this issue, we relax this assumption and adopt a weight constraint approach. Further, we illustrate that some DMUs would always be allocated with zero fixed cost if only the goal of efficiency maximizing is considered. Therefore, some weight constraints are added, and a new bi-objective model is proposed to allocate the fixed cost among the DMUs in order to simultaneously maximize the efficiencies of the DMUs and make the allocation as close as possible to the one generated according to the DMUs’ operation sizes. A mono-objective nonlinear program, which can be solved using dichotomy and a linear program solver, is used to obtain a non-dominated or Pareto-optimal trade-off solution for the bi-objective model. With the use of our approach, neither unrealistic weights nor zero fixed cost appears in the result. Finally, the proposed approach is applied to a numerical example and a commercial bank case study.
Journal Article
The Product Variety Costing Method : A Data-Driven Approach to Resource Allocation and Cost Evaluation
This study introduces the Product Variety Costing Method (PVCM), a data-driven framework that addresses the limitations of existing costing approaches, which fail to accurately present the cost of product and part variety, thereby constraining cost-informed decision-making in modular product development. Traditional cost allocation methods often lack one or more of the following: a full life-cycle perspective, a lower level of granularity according to the product structure, or a combined integration of qualitative and quantitative data. The PVCM bridges these gaps by combining Time-Driven Activity-Based Costing (TDABC) with hierarchical product structures and empirical enterprise data, enabling the quantification of variety-induced resource consumption across components, subsystems, and complete products. An industrial application demonstrates that the PVCM enhances cost accuracy and transparency by linking resource use directly to specific product abstraction levels, thereby highlighting the true cost impact of product variety. In this case, results revealed deviations of up to 60% in the adjusted contribution margin ratio relative to traditional overhead-based methods, clearly indicating the influence of product variety on cost assessments. The method supports design and managerial decision-making by allowing evaluation of modularization based on detailed cost insights. While the study’s scope is limited to selected life-cycle phases and a single company case, the findings highlight the method’s future potential as a generalizable tool for evaluating economic benefits of modularization. Ultimately, the PVCM contributes to a more transparent and analytically grounded understanding of the cost of variety in complex product portfolios.
Journal Article