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Models of Subsidy Allocation among City Districts

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  • Martin Dlouhý

Abstract

Each year, a part of the budget of the City of Prague is allocated among its city districts in the form of subsidies. The objective of the City of Prague is to find such a set of criteria and such a set of relative weights that estimate the expected cost of local public administration best. The objective of each city district is subsidy maximization by influencing the criteria and weights. Two quantitative methods that set the weights without participation of decision makers are presented. The first method is based on the multiple-criteria decision making and the second one on the zero-sum gains DEA model. The illustrative calculations for the year 2012 are presented. An application of the multiple-criteria decision making model requires re-allocation of 8.3% of the total subsidy budget in comparison to the real subsidy values in the year 2012. An application of the zero-some gains DEA model requires re-allocation of 14.0% of the total subsidy to city districts. We are not able to offer any definitive answers about which allocation model is the best one, however, an analysis of the subsidy allocation process can help us in understanding the nature of the subsidy allocation problem and its potential weaknesses.

Suggested Citation

  • Martin Dlouhý, 2014. "Models of Subsidy Allocation among City Districts," Prague Economic Papers, Prague University of Economics and Business, vol. 2014(1), pages 108-120.
    • Handle: RePEc:prg:jnlpep:v:2014:y:2014:i:1:id:475:p:108-120
    DOI: 10.18267/j.pep.475
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    References listed on IDEAS

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    1. Martin Dlouhý & Josef Jablonský & Ivana Novosádová, 2007. "Využití analýzy obalu dat pro hodnocení efektivnosti českých nemocnic [Use of data envelopment analysis for efficiency evaluation of czech hospitals]," Politická ekonomie, Prague University of Economics and Business, vol. 2007(1), pages 60-71.
    2. Lins, Marcos P. Estellita & Gomes, Eliane G. & Soares de Mello, Joao Carlos C. B. & Soares de Mello, Adelino Jose R., 2003. "Olympic ranking based on a zero sum gains DEA model," European Journal of Operational Research, Elsevier, vol. 148(2), pages 312-322, July.
    3. Josef Jablonský, 2004. "Modely hodnocení efektivnosti produkčních jednotek [Models for efficiency evaluation of decision making units]," Politická ekonomie, Prague University of Economics and Business, vol. 2004(2).
    4. Martin Dlouhý, 2001. "Matematický model restrukturalizace odvětví a firmy [A mathematical model of sector/firm restructuralization]," Politická ekonomie, Prague University of Economics and Business, vol. 2001(4).
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    More about this item

    Keywords

    data envelopment analysis; subsidy allocation; zero sum gains;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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