Budgeting, Rational Models

Budgeting refers to decisions about how much funding to provide for the programs, staffs, and infrastructures of government, as well as about the processes used to arrive at funding levels. In examining processes, budgeting theories explain how individuals who hold budget-writing positions choose funding levels for programs. A second class of theories explain how and why political elites try to manipulate budgets to foster their goals.

Rational theories of individuals responsible for choosing how much to fund budget lines offer bounded rationality explanations of these decisions. [Page 164]Due to limits on human cognition, vast numbers of lines in the budget, and complex decision-making environments, budgeters' forecasts about how well their choices will facilitate their goals are imperfect. Despite these limitations, budgeters use decision-making strategies that help them foster their goals. Such strategies are boundedly rational because, although the choices and behavior resulting from such strategies are not optimal, budgeters' decisions still help them realize program goals. In this way, budgeters “satisfice”—they make decisions that are “good enough.”

The first generation of boundedly rational budgeting theories was developed in the 1960s by Aaron Wildavsky, whose contributions to understanding budgeting continue to exert a profound influence on budgeting scholarship. This perspective, developed with respect to the federal government in the United States, emphasizes that individuals responsible for contributing to the budget must take an incremental approach to arrive at funding levels. Budgeters begin by examining the “base” for each budget line, which refers to the amount that was spent on the line in the previous year's budget. From this base, budgeters make small adjustments based on new information and limited by the availability of funds. For example, if program advocates can make an effective argument about why additional funds are needed, budgeters may increase funding levels slightly from the previous year. Nevertheless, even if budgets change from year to year, budgeters do not make drastic changes. Budgeters follow this approach out of necessity. Examining the budget holistically would involve the impossible task of investigating each budget line to ascertain the optimal volume of funds required to realize the goals embodied in the programs. Unfortunately, such an approach is not feasible given the vastness of the government and the resulting volume of decisions that must be made. By taking an incremental approach, however, budgeters arrive at funding levels for all budget lines, ensuring that programs continue serving their purposes even if neither the funding levels nor the achievement of program goals are optimal.

Additional research, however, observed that many budgeting decisions were not incremental, spurring refinement of Aaron Wildavksy's approach. John Padgett's serial judgment theory of budgeting stresses continuity with the incremental perspective in that budgeters' decisions are understood from a boundedly rational perspective. Budgeters cope with the volume and complexity of the decisions they face by starting with the level of funding from the previous year and satisficing to arrive at funding levels for the current budget. However, the heuristic employed by budgeters is not incremental choice. Rather than consciously choosing a funding amount that differs slightly from that disbursed previously, budgeters consider, one after another, alternatives for funding levels until they arrive at one that is acceptable. In this way, budgeters satisfice in that they do not try to discover optimal funding levels for programs. Critically, though, budgetary outputs are predicted to differ from outputs predicted by incremental approaches. Because budgeters move from alternative to alternative until they reach an outcome that is good enough, it is possible for them to arrive at funding levels that are substantially different from the amounts funded in the previous year's budget. Such dramatic changes can occur, for example, when budgeters' understandings of what is necessary from a programmatic standpoint leads them to pick a funding level that happens to be a significant departure from the previous year's base. Research focusing on the distribution of year-to-year changes in programs' funding levels in the context of U.S. government budgets revealed that this perspective explained better the distribution of year-to-year changes than an incremental approach did. By specifying more precisely the decision-making heuristics employed by budgeters, the serial judgment perspective improved on the incremental model while remaining anchored firmly to a realistically bounded rational view of human decision making.

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