Balancing Fairness and Efficiency in an Optimization Model

Abstract

Optimization models generally aim for efficiency by maximizing total benefit or minimizing cost. Yet a trade-off between fairness and efficiency is an important element of many practical decisions. We propose a principled and practical method for balancing these two criteria in an optimization model. Following a critical assessment of existing schemes, we define a set of social welfare functions (SWFs) that combine Rawlsian leximax fairness and utilitarianism and overcome some of the weaknesses of previous approaches. In particular, we regulate the equity/efficiency trade-off with a single parameter that has a meaningful interpretation in practical contexts. We formulate the SWFs using mixed integer constraints and sequentially maximize them subject to constraints that define the problem at hand. After providing practical step-by-step instructions for implementation, we demonstrate the method on problems of realistic size involving healthcare resource allocation and disaster preparation. The solution times are modest, ranging from a fraction of a second to 18 seconds for a given value of the trade-off parameter.