Issue: 2015/Vol.25/No.2, Pages 19-34
A THEORETICAL FRAMEWORK FOR DETERMINING THE APPROPRIATE LEVEL OF SUBSIDY IN AN ECONOMY
Augustine A. Osagiede
, Virtue U. Ekhosuehi
Cite as: A. A. Osagiede, V. U. Ekhosuehi. A theoretical framework for determining the appropriate level of subsidy in an economy. Operations Research and Decisions 2015: 25(2), 19-34. DOI 10.5277/ord150202
Abstract
A framework has been developed for determining the subsidy that, in the long run, serves to equalize the per capita income shares across income classes. The framework characterizes the income dynamics by the Markov process and uses the principle of maximum entropy for selecting among alternative subsidy schemes. The study provides a means to forecast the per capita income shares at any instant of time and serves as an objective tool to decide on the appropriate level of subsidy.
Keywords: entropy, Markov process, per capita income, subsidy
Received: 18 June 2014 Accepted: 19 March 2015