Niskanen’s Budget Maximizing Model
Wikipedia (reference below) summarizes the budget maximizing model developed by William Niskanen in the 1970s as arguing that rational bureaucrats 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.
Wikipedia summarizes the analytical core of the model as follows:
“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 marginal.”
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Wikipedia, Budget maximizing model, at https://en.wikipedia.org/wiki/Budget-maximizing_model, accessed 19 January 2017.
Page created by: Ian Clark, last modified on 19 January 2017.
Image: More Like People, at http://morelikepeople.org/the-growing-anatomy-of-a-human-institution-v0-1/, accessed 19 January 2017.