Social good, fairness, and efficiency in operations management

In recent years, there has been an increasing interest in the Operations community in studying problems that balance the maximization of profits and efficiency with notions of fairness (e.g., Bertsimas et al. 2011, 2012) and environmental sustainability (e.g., Kleindorfer et al. 2005, Lee and Tang 2018). In this thesis, we present two works that contribute to this growing literature. The first chapter, coauthored with Yonatan Gur and Dan Iancu, studies the trade-offs between efficiency and guarantees to providers that may arise from equity or fairness considerations. In the second chapter, coauthored with Dan Iancu and Erica Plambeck, we investigate how increasing smallholder farmers' welfare through intensification can affect tropical forest conservation. We provide a more detailed description of each chapter below. Value Loss in Allocation Systems with Provider Guarantees: Many operational settings share the following three features: (i) a centralized planning system allocates tasks to workers or service providers, (ii) the providers generate value by completing the tasks, and (iii) the completion of tasks influences the providers' welfare. In such cases, the planning system's allocations often entail trade-offs between the service providers' welfare and the total value that is generated (or that accrues to the system itself), and concern arises that allocations that are good under one metric may perform poorly under the other. In this chapter we propose a broad framework for quantifying the magnitude of value losses when allocations are restricted to satisfy certain desirable guarantees to the service providers. We consider a general class of guarantees that includes many considerations of practical interest arising, e.g., in the design of sustainable two-sided markets, in workforce welfare and compensation, or in sourcing and payments in supply chains, among other application domains. We derive tight bounds on the relative value loss, and show that this loss is limited for any restriction included in our general class. Our analysis shows that when many providers are present, the largest losses are driven by fairness considerations, whereas when few providers are present, they are driven by the heterogeneity in the providers' effectiveness to generate value; when providers are perfectly homogeneous, the losses never exceed 50%. We study additional loss drivers and find that less variability in the value of jobs and a more balanced supply-demand ratio may lead to larger losses. Lastly, we demonstrate numerically using both real-world and synthetic data that the loss can be small in several cases of practical interest. Improving Smallholder Welfare While Preserving Natural Forest: Intensification vs Deforestation. Increasing the welfare of smallholder farmers in developing countries plays a crucial role in the global effort to reduce worldwide poverty and hunger. On the one hand, smallholders represent a large proportion of the world's poor and, on the other, they produce the majority of the food consumed in developing countries. This realization has led governments and organizations around the world to implement policies aimed at increasing farmers' yields. Although most of these policies have resulted in welfare increases, the environmental effects have been varied. While in many settings intensification policies have been linked to a decrease in deforestation, in many other settings the reverse is true. In this chapter we propose a novel explanation of these seemingly contradictory results. We achieve this through studying a detailed operational model of a farmer's dynamic decisions of land-clearing and production. We show the importance of considering the interaction between random production costs and liquidity constraints faced by smallholder farmers. These two elements are key to our main result: a reduction in the cost of intensification can lead to lower deforestation rates when the variation in production costs is high enough compared to the cost of intensification. Alternatively, the same reduction in the cost of intensification may lead to higher deforestation rates if the variation in production costs is low enough compared to the cost of intensification. This result helps explain the discrepancies seen in practices and may allow policy makers to better target interventions in order to achieve win-win situations: improvement of smallholder welfare and protection of the natural forest

Keywords: Business.
Advisor: Gur Yonatan
Iancu Dan
Plambeck Erica L.