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Statistical Issues in Allocating Funds by Formula
is used to distribute a fixed total, so that underallocation to some areas is matched algebraically to overallocations to other areas. Relevant assessments include simulations to determine how the use of higher quality data is likely to change the allocations. Determining the likely program effects of such changes is much more difficult. The sometimes tenuous links between improved inputs to formulas and attainment of goals for increases in social welfare have implications for how much to invest in developing new or improved data for allocation purposes. If the link is strong, then the benefit from spending more money to improve the statistics will be more than if the link is weak.