How to distribute the European regional development funds through a combination of egalitarian allocations: the constrained equal losses min

Abstract

AbstractAs Solís-Baltodano et al. (2021) figure out, almost a third of the total European Union budget was set aside for the Cohesion Policy during the 2014–2020 period. The distribution of this budget is made through three main structural and investment funds, trying to promote convergence in the level of development of EU countries. Specifically, the current approach, by analysing this situation as a claims problem (O’Neill, 1982), finds the claims solution that performs better than the others by reducing inequality and promoting convergence to a greater degree (the Constrained Equal Losses rule). Nonetheless, when using this egalitarian division of losses, regions may not receive any funds. This paper defines a new way to distribute the limited resources of the European Regional Development Fund (ERDF). It proposes a compromise between the egalitarian approaches, i.e., a combination of the egalitarian division of the funds with an egalitarian division of the losses (what regions do not get). In doing so, the proposal applies the constrained equal losses solution while ensuring a minimum amount is allocated to each region (sustainable bound). Finally, the new solution is axiomatically analysed, and it is applied to the ERDF problem.