Budget-maximizing model
Encyclopedia
Budget-maximizing model is an influential new stream of public choice theory
and rational choice analysis in public administration
inaugurated by William Niskanen, in 1971. It argued that rational
bureaucrat
s will always and everywhere seek to increase their budgets in order to increase their own power, thereby contributing strongly to state growth and potentially reducing social efficiency
.
The Bureau-shaping model
has been developed as a response to the Budget-maximizing model. Niskanen's inspiration could also have been Parkinson's law
sixteen years earlier (1955).
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.
Public choice theory
In economics, public choice theory is the use of modern economic tools to study problems that traditionally are in the province of political science...
and rational choice analysis in public administration
Public administration
Public Administration houses the implementation of government policy and an academic discipline that studies this implementation and that prepares civil servants for this work. As a "field of inquiry with a diverse scope" its "fundamental goal.....
inaugurated by William Niskanen, in 1971. It argued that rational
Rationality
In philosophy, rationality is the exercise of reason. It is the manner in which people derive conclusions when considering things deliberately. It also refers to the conformity of one's beliefs with one's reasons for belief, or with one's actions with one's reasons for action...
bureaucrat
Bureaucrat
A bureaucrat is a member of a bureaucracy and can comprise the administration of any organization of any size, though the term usually connotes someone within an institution of a government or corporation...
s will always and everywhere seek to increase their budgets in order to increase their own power, thereby contributing strongly to state growth and potentially reducing social efficiency
Efficiency (economics)
In economics, the term economic efficiency refers to the use of resources so as to maximize the production of goods and services. An economic system is said to be more efficient than another if it can provide more goods and services for society without using more resources...
.
The Bureau-shaping model
Bureau-shaping model
Bureau-shaping is a rational choice model of bureaucracy and a response to budget-maximization model. It argues that rational officials will not want to maximize their budgets, but instead to shape their agency so as to maximize their personal utilities from their work...
has been developed as a response to the Budget-maximizing model. Niskanen's inspiration could also have been Parkinson's law
Parkinson's law
Parkinson's law is the adage first articulated by Cyril Northcote Parkinson as the first sentence of a humorous essay published in The Economist in 1955:...
sixteen years earlier (1955).
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.