Allocating a limited budget to small areas
N.T. Longford
Abstract
We consider the general problem of allocating funds from a fixed budget
to the districts of a country according
to the values of a district-level indicator.
The obvious approach might seem to be to efficiently estimate
the relevant district-level quantities,
and then to apply the allocation scheme that would be optimal
if these quantities were equal to the estimates.
We show that such a two-stage strategy is suboptimal.
By a simulation approach,
we find allocation schemes that are superior to this strategy.
We offer no single universal solution, but motivate the results by intuition.
We discuss the implications of our finding on the separation
of the remits of a statistical agency and its client.
March 2012
in the Journal of the Indian Society of Agricultural Statistics 66
(Special Issue); 2012