Budget-maximization theory (20TH CENTURY)

Theory of bureaucracy.

Bureaucrats will seek to expand the budgets of their departments, irrespective of what their formal political commitments or personal ambitions may be.

This will lead them both to expand the numbers of their staff and the volume of their funds and facilities, and to extend or develop the areas over which they have responsibility.

Also see: PARKINSON’S LAW

Source:
Patrick Dunleavy, Democracy, Bureaucracy and Public Choice (London, 1991)

Niskanen’s budget maximizing bureaucrat

The model contemplates a bureaucrat who heads a public administration department, and who will try to maximize the department’s budget, thus increasing its salary and prestige.

There is a demand for the department’s services on the part of electors and voters, but, contrary to publicly managed firms, which directly offer their products and services to these electors, the department is responsible for producing the services which will then be supplied by the Legislature to the electors.

It will therefore be the legislature, or Government, the agent which defines the department’s budget, depending on the quantity which it supplies. The more services the department supplies, the higher will its budget be. Therefore, the bureaucrat’s objective will be to maximize the quantity of services supplied, subject to a social welfare break-even constraint. This means that the dead weight loss generated by excessive production of services must never be higher than the elector’s consumer surplus (otherwise, the Legislature would notice that something was wrong with the department’s activity, which would be causing social losses and not gains).

In other words, a typical, private-sector utility maximizing model would anticipate that the department would expand services (and budgets) to the point that the marginal cost and marginal benefits are equated. In Niskanen’s model, he would predict that average costs and benefits would be equated instead of the marginals.