A Procedure for Determining Optimal Subsidies and Economic Activity Levels in an Economically Depressed Area.
MASSACHUSETTS INST OF TECH CAMBRIDGE OPERATIONS RESEARCH CENTER
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In many developed countries there are areas with serious employment problems. Factor prices in such economically depressed areas are typically determined outside the area. Wage rates, for example, are given by nationwide bargaining by labor unions and are typically in excess of marginal productivity of labor in the depressed area. Economic activity in a depressed area is mainly undertaken by private entrepreneurs, who cannot operate without a subsidy of some kind. A goal of public policy in the depressed area is full employment. This goal may be achieved either by expanding the public sector or by stimulating economic activity in the private sector through subsidies. The government seeks full employment at the lowest possible cost, the cost being the sum of total subsidies to the private sector and the net cost of the expanded public sector. The planning problem is formulated as a mixed integer programming problem. A solution procedure is suggested. The paper contains a constructed numerical example to illustrate the application of the solution procedure. Author
- Economics and Cost Analysis
- Personnel Management and Labor Relations
- Theoretical Mathematics