10 May 2022
Companies may not have to trade-off between efficiency and fairness – research shows
Research pioneered by Dr Nikolaos Argyris of Loughborough University’s School of Business and Economics, has introduced a new approach to support decision making when allocating finances in order to promote fairness whilst limiting the impact on resource efficiency.
Over the past few years, Dr Argyris has worked with other academic colleagues to study the trade-off between efficiency and fairness in resource allocation decisions and the challenges organisations face to make better decisions when such trade-offs are involved.
The work is still in progress, but Dr Argyris has proposed the introduction of a new model for measuring the trade-offs between efficiency and fairness.
The welfare-based model
The paper considers the problem of supporting resource allocation decisions affecting multiple beneficiaries, using a mathematical model to help decision-makers allocate resources effectively within real-world constraints. Such problems, Dr Argyris says, inherently involve efficiency-fairness trade-offs.
In contrast to existing research in the area, Dr Argyris’ paper incorporates fairness in the form of ‘welfare dominance’:
- A model that is based on ensuring improvements to end-user wellbeing relative to desired benchmark outcomes.
- Through these benchmarks, the framework ensures that the improvements to the well-being of all end-users is captured in the decision-making process.
Such a model can be especially helpful for resource allocation within the public sector, as it helps organisations evaluate the impact of different resource allocation choices against aggregate population outcomes and how fairly these outcomes are distributed across the population. This can help them explore what might be done to address both efficiency and fairness criteria and enables them to reach such decisions in a transparent and auditable way.
Implications for the Healthcare Sector
When looking at the allocation for healthcare finance for example, Dr Argyris commented: “They have to allocate resources whilst estimating the future of health needs. Obviously, their budget will not cover giving absolutely everything to absolutely everyone, so it’s a balancing act: what healthcare services do you commission on the basis that you want to increase the health of the population as much as possible, but at the same time, balancing that with the distribution of healthcare across that population?”
This research has become particularly relevant over the past two years, with the outbreak of COVID-19 putting a significant strain on healthcare providers throughout the world and the associated negative impact particularly to the lives of the most deprived populations.
That said, the decision support model developed as part of the research is not limited to healthcare, and can be used, Dr Argyris notes, in “every decision relating to the provision of a public service.” It could also be used in the private sector: “this is particularly so when firms or organisations need to cooperate”.
You can read the full paper by Dr Argyris here.
Dr Argyris is part of the Management Science and Operations Academic Group here at the Loughborough University School of Business and Economics.