Abstract
Fairness of resource allocation remains one of the basic criteria of public choice. Taking fairness into account in public resource allocation is critically important when decision-making creates conflicts of interest among potential stakeholders. The European Union’s structural policy budget allocation is especially prone to such conflicts, mainly due to its complexity and lack of commonly accepted indexes to measure its effects. The objective of this paper is to evaluate if a fair-division algorithm can be effectively implemented in practice to diminish conflicts and provide a fair allocation of resources. The practical application involves a problem of the EU’s rural-development policy budget in Poland. The algorithm provides a simple formal framework for budget allocation and utilizes structural program evaluation questionnaires of the key stakeholder groups. The provided example demonstrates that the implementation of a fair division algorithm is feasible in practice. The algorithm is flexible, robust to variation in pre-set budget constraints, and results in a sensible solution that achieves consensus among the stakeholder groups.
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Notes
The word “measure” is used in the paper according to EU’s official nomenclature.
The scheme does not penalize the players for greediness to the degree that DD does. The same solution concept was also used in Abreu and Matsushima (1994), who show in a different context how the severity of punishment can be mitigated by implementation via this concept.
The consequences of another set of rules, which allows the play to progress to a new round if the players make incompatible offers, are analyzed in Chatterjee and Samuelson (1990).
The specific incentives of players are presented in the application example on pp. 8–9.
The age cut-off of 40 years is used by the EU to define young farmers.
For a description of the reforms, see Daugbjerg and Swinbank (2007).
The main aim of the LEADER initiative is to build social capital through mobilization of rural population and to contribute to the creation of new jobs in rural areas, as well as to improve the management of local resources.
Lower bound for early retirement includes liabilities from previous Rural Development Program. Thus it is larger than 10 % of the upper bound for this measure.
It is worth noting that similar results are also achieved using uniform gain procedure presented by Moulin (2003). Based on the pay-off table presented in this example, the uniform gain allocation for all the underestimated measures (below the egalitarian share) would be essentially identical to the one based on the Brams and Taylor’s procedure. The difference between the two procedures becomes apparent only in the allocation for the overestimated measures (higher bids than the egalitarian share). In Brams and Taylor’s procedure the allocation would continue to reflect beneficiaries’ ratings until the money in the budget is exhausted, while according to the uniform gain procedure the bids over egalitarian share would receive equal shares of the remaining budget with the constraint of the upper and lower bounds, or beneficiaries’ claim, whichever is smaller. When the uniform gain procedure is applied to the presented example, the resultant allocation differs from the Brams and Talor’s algorithm only for two out of the three most overestimated measures-modernization of agricultural holdings and setting up of young farmers. The uniform gain procedure algorithm would allocate 416 mln Euros more for setting up of young farmers and a respectively lower amount for modernization of agricultural holdings. Similar to Brams and Taylor’s procedure early retirement would receive only its lower bound of financing.
Even in the most extreme case, in which the actual pay-off table is known to the beneficiaries (which is not possible, because it is created after the survey) they would still be unable to assess the measures in a way to assure the desired level of funding. If the opinions of experts and advisors were dramatically different from the ones of the beneficiaries, the sequence of payments might still put a measure in the last place for financing; such measure would receive only the lower bound of funding.
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Acknowledgments
This research has been based on the data gathered for the purpose of mid-term evaluation of Polish Rural Development Program 2007–2013. The author is especially grateful for the numerous contributions of Professor Steven Brams, New York University, including helpful discussions and insightful criticism of the work presented in this article.
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Kiryluk-Dryjska, E. Fair Division Approach for the European Union’s Structural Policy Budget Allocation: An Application Study. Group Decis Negot 23, 597–615 (2014). https://doi.org/10.1007/s10726-013-9346-6
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DOI: https://doi.org/10.1007/s10726-013-9346-6