Resource Allocation with Undesirable Outputs: Evidence from Taiwan’s Container Shipping Liners

In the world, most international trade is carried out by shipping. Taiwan is surrounded by sea and is a key transportation hub in the Asia-Pacific region. Shipping industry in Taiwan plays an important role in international trade. In order to enhance the competitiveness of shipping companies, managers need to increase the overall efficiency. One way to achieve this is to allocate limited resource efficiently to different sub-units of an organization. When shipping companies provide the transportation service, the carbon emissions may be jointly produced by using various categories of resources. Some inputs might not be specifically allocated to sub-units, while others might be related to the production of carbon emissions. How to allocate common inputs to sub-units specifically and link potential carbon emission reductions with energy reductions are crucial issues in management of shipping companies. This paper proposes a novel centralized data envelopment analysis (CDEA) model, which consider both desirable and undesirable outputs in the allocation of a given resources, to explore the resource allocation among individual routes of a shipping company in Taiwan. To overcome some deficiencies of the traditional DEA model, we intend to propose a two-phase CDEA model. Based on the two-phase CDEA model, Russell directional distance function (RDDF) is adopted in Phase I model and the slack-based measure (SBM) is used in phase II to reallocate resource of common inputs, general inputs and carbon emission related inputs. Asia liner shipping routes operated by a Taiwanese container shipping liner for the year 2014 are investigated as an empirical study. The results provide valuable suggestions and managerial implications for management.