Allocation of Recurring Fixed Costs According to Partners’ Varying Revenues in Professional Services

Eugene Khmelnitsky, Yigal Gerchak

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

We consider professional service providers, such as lawyers and physicians, who essentially work independently, but share an office or clinic. They need to jointly cover recurring fixed costs, like rent and staff wages, in every period. It is often argued that such costs should be allocated based on usage of the facilities. A more quantifiable indirect indicator of usage is the revenues. As partners’ revenues fluctuate over time, it is plausible to require, as we do in this study, that their shares in the fixed costs fluctuate accordingly. Had partners’ revenues not fluctuated, the deterministic cost allocation problem would be mathematically equivalent to the bankruptcy problem. Ours is a dynamic stochastic model of cost allocation for which we examine some ex-ante mechanisms based on partners’ portions of total revenue. Monotonicity, proportionality, and other properties of the suggested mechanisms are studied.

Original languageEnglish
Title of host publicationHuman-Centric Decision and Negotiation Support for Societal Transitions - 24th International Conference on Group Decision and Negotiation, GDN 2024, Proceedings
EditorsMarta Campos Ferreira, Thomasz Wachowicz, Pascale Zaraté, Yu Maemura
PublisherSpringer Science and Business Media Deutschland GmbH
Pages130-141
Number of pages12
ISBN (Print)9783031593727
DOIs
StatePublished - 2024
Event24th International Conference on Group Decision and Negotiation, GDN 2024 - Porto, Portugal
Duration: 2 Jun 20245 Jun 2024

Publication series

NameLecture Notes in Business Information Processing
Volume509 LNBIP

Conference

Conference24th International Conference on Group Decision and Negotiation, GDN 2024
Country/TerritoryPortugal
CityPorto
Period2/06/245/06/24

Keywords

  • cost allocation
  • facility sharing
  • gamma distributions
  • professional services
  • revenue ratios

All Science Journal Classification (ASJC) codes

  • Management Information Systems
  • Control and Systems Engineering
  • Business and International Management
  • Information Systems
  • Modelling and Simulation
  • Information Systems and Management

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