Competitive Budgeting and Bureaucratic Control: A Theory and Experimental Test

Abstract:     
In this paper, I present and test a method by which executive branch politicians and their appointees can control a career administrative bureaucracy. A formal model predicts that this strategy, competitive budgeting, can be effective at inducing effort from bureaucrats even when they enjoy extensive civil service protections and despite executives’ limited and error-prone ability to monitor bureaucratic output. A laboratory experiment that tests the incentive scheme finds that subjects exert more effort than predicted and do not lower their effort when working to benefit ideologically opposed groups. The experiment also shows that subjects exert less effort when competing against those who share their political ideology (and exert more effort when competing against those who do not). The results suggest that budget-based incentives might make ideologically diverse workforces (as produced by the merit civil service system) as loyal to the executive as ideologically homogeneous workforces (produced by patronage).

Keywords: principal agent, bureaucracy, tournament, budgeting, experiment

Working Paper Series