Abstract

The allocation of limited funds to competing activities is a well-known problem in economics and fi-nance. Current modelling approaches for this problem are application specific and mathematically complex. This paper introduces a straightforward modelling approach based on a coloured-edge chain graph. The approach elicits a set of Pareto efficient allocations whose cardinality is theoretically studied. Additionally, the applicability of the model is illustrated through a case-study based on the chilean pension system. We conclude that despite intractabil-ity, the approach can tackle problem in practice since worst-case instances are unlikely to occur.