Bureaucracy and Public Economics.

• Author: Sandler, Ralph

This book by William Niskanen brings together in one volume the full text of his original work Bureaucracy and Representative Government published in 1971 along with several related articles [1; 2]. It also contains a recent reassessment of the larger body of scholarship on the economics of bureaucracy.

In the 1994 congressional elections, Republicans took control of Congress and through their Contract with America have attempted to minimize the role of government in American society. The on-going budget stalemate with President Clinton aside, the political mood in the country has certainly changed and there is now widespread dissatisfaction with the size of the public sector and its performance. It is therefore fitting to reassess the work of Niskanen on the behavior of bureaucracies.

For many years economists have attempted to develop a predictive model of behavior for political institutions that would have the same richness and power of models now used to describe the behavior of market institutions. In 1971, Niskanen attempted to develop a positive economic theory of the behavior of bureaus. He defined a bureau as "a nonprofit organization, financed primarily by an appropriation or grant from a sponsor, in which no individual can legally appropriate any part of the difference between revenue and cost as direct personal income" [p. 15]. His initial framework included three assumptions about the behavior of bureaucracies and their political sponsors:

1. Bureaucrats were assumed to act to maximize the expected budget of their bureau.

2. Sponsors were assumed to be "passive" in accepting or rejecting the budget-output proposal without any careful monitoring or evaluation of alternatives.

3. Bureaucracies and their sponsors [can be expected to] bargain over the full range of possible combinations [p. 272].

   Unfortunately, this early work did not present any empirical evidence on the behavior of bureaus, although it does provide a consistent analytical framework that can be tested. Simple mathematics, easily accessible to most readers, is used to express the main body of his general theory and to answer questions about the budget and output behavior that should be expected of bureaus under different conditions. Readers will not be surprised by some of the hypotheses suggested by Niskanen's model:

1. There is a tendency for bureaucratic organizations to over-supply services.

2. Bureaus which purchase factors in a competitive market generate a larger...