A Logit Model for Budget Allocation Subject to Multi Budget Sources

Abstract

In a complex and extended system such as a government, the proper allocation of the budget to its sub-entities is always a major challenge. As such for cases like governments, a situation in which multiple budget sources with different concerns available to the sub-entities is common. This study develops an applicable model for large-scale cases in which identifying the flow of capital or budget from (multiple) sources to the sub-entities is sought. Since the influential factors to the allocation process may be mingled with some unknown parameters (as well as known factors) a logit model is developed from past panel data. The logit model is based on the concept of utility, which quantifies the advantage of approaching budget-sources for the sub-entities. Then the budget allocation problem of logit form is written as a mathematical programming formulation for which Successive Coordinate Descent (SCD) method is proposed as the solution algorithm. In this paper, the proposed methodology is tested numerically. The results of this study show there is strong evidence that some of the entities’ properties can be altered in order to achieve a better budget allocation.