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The allocation of shared fixed costs

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We consider the problem of sharing the fixed costs of facilities among a number of users. Typically the users have a benefit or revenue from the use of the facilities. Although the problem can be formulated and solved as an integer programme this provides limited accounting information. Such information is often needed in order to (i) decide on which facilities are viable and (ii) to charge the users. It is shown that it is impossible to meet both these needs in a satisfactory way. We examine different ways of partially meeting them. In addition, we consider the issue of fairness among different possible cost allocations and how such ‘fair’ costs may be derived.

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