Budget-maximizing model

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 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.The Bureau-shaping model has been developed as a response to the Budget-maximizing model.

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 maximise the quantity of services supplied, subject to a social welfare break-even constraint. This means that the deadweight 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).

References

*Friedman, Lee (2002), "The Microeconomics of Public Policy Analysis", Princeton University Press, pp. 429-432