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A theoretical framework for determining the appropriate level of subsidy in an economy

Osagiede A. A., Ekhosuehi V. U.

Operations Research and Decisions

2015

Vol. 25, No. 2

19--35

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.