Overbooking decision rules

Firms that take reservations for performance of a service or delivery of a good face the prospect that the reservation will not survive until the service date. Allowance for such cancellations and no-shows is made by overbooking. This paper gives simple optimal decision rules for overbooking. A generic decision rule is developed, then adapted for specific models of the random survival process for reservations. These optimal rules are easy to grasp, provide insight to the user, and are well-matched to the data available in service firms.