Models of Subsidy Allocation among City Districts

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.