Budget Maximizing Bureaucrats

Budget maximization is put forward as an aim and practice of bureaucrats operating in a nonmarket context who are often able to exert informational or agenda-setting power. Sometimes these practices result in oversupply or other undesirable outcomes. Whereas Gordon Tullock and Anthony Downs had previously discussed aspects of budget maximization, it was most comprehensively developed by William Niskanen in 1971. In Niskanen's model, a bilateral monopoly exists between a sponsor and a bureau. He famously claims,

However, Niskanen also states that officials are able to push up budgets only through the production of more output for the sponsor, making the model one of budget/output maximization rather than just budget maximization. In the context of the bureau being able to offer take-it-or-leave-it outcomes for the sponsor, the budget tends to be expanded beyond the point where marginal public benefits equal marginal costs to a point where all the consumer surplus gains are balanced by the excess of marginal cost over marginal benefits. This “oversupply” result has been an influential critique of bureaucratic supply of services, especially in the late 1970s given concerns about the growth of the public sector. Keith Dowding, however, has noted the difficulty of comparing outputs from markets and political processes, using a common framework that potentially limits the force of the critique.

The concept of budget-maximizing has been extended and altered in many ways, and there have been many empirical tests of this family of models. Taking some examples: the take-it-or-leave-it agenda-setting power of the bureau has been replaced with a unit price or price schedule. Alternative behavioral assumptions have been posited, notably budget-slack maximization rather than budget/output maximization. A trade-off between benefits from spending time managing a budget and undertaking alternative, and desirable, policy work activity has been suggested—resulting in bureau-shaping as well as budget-maximizing activity. Overall, the literature suggests that the agenda-setting power of bureaucrats can facilitate budget maximization and that sponsors are often able to use better monitoring and competitive pressures to limit its extent.