Efficient Distribution of Resources Through Three Levels of Government

This paper presents a model for determining how a central government can most efficiently allocate resources among other levels of government. The model explicitly includes the fact that lower levels of government can make independent decisions once they have been given resources by the central government. A key feature of the model is the mathematical formulation of the central government's objective of distributing resources efficiently, while at the same time being as fair as possible to all those receiving allocations. An algorithm for solving the model is presented along with a numerical example.