On the Efficiency-Fairness Trade-off

TLDR

This paper addresses how to design the appropriate objective for resource allocation problems, focusing on the tension between efficiency and fairness. The study aims to design objectives that balance efficiency and fairness within a framework applicable to various resource allocation problems. The authors analyze a rich family of fairness‑oriented objectives, characterize the resulting efficiency‑fairness trade‑off, and propose managerial prescriptions for selecting objectives. The framework is validated in a case study on air traffic management, demonstrating its practical value. Accepted by Yossi Aviv, Operations Management.

Abstract

This paper deals with a basic issue: How does one approach the problem of designing the “right” objective for a given resource allocation problem? The notion of what is right can be fairly nebulous; we consider two issues that we see as key: efficiency and fairness. We approach the problem of designing objectives that account for the natural tension between efficiency and fairness in the context of a framework that captures a number of resource allocation problems of interest to managers. More precisely, we consider a rich family of objectives that have been well studied in the literature for their fairness properties. We deal with the problem of selecting the appropriate objective from this family. We characterize the trade-off achieved between efficiency and fairness as one selects different objectives and develop several concrete managerial prescriptions for the selection problem based on this trade-off. Finally, we demonstrate the value of our framework in a case study that considers air traffic management. This paper was accepted by Yossi Aviv, operations management.