The economics of choice in the allocation of Federal grants: An empirical test

In this paper, we have provided strong evidence in favor of the Niskanen model of bureaucratic behavior and against the ‘public interest’ hypothesis by considering the selection process used by HUD in awarding Urban Development Action Grants. Specifically, we did not find that any distress measures specified in regulations dealing with the program were statistically significant in explaining the awarding of grants. The only consistently significant factors of those considered were the level of private commitment to the project and the ratio of private funds committed to total amount requested. We argue that use of these variables, especially the latter, as primary selection criteria by HUD bureaucrats reflects their desire to enhance their budgetary environment by making what the market perceives to be the best investments available to them, avoiding risk and spreading available UDAG funds as widely as possible. We conclude that HUD officials may attempt to limit the number of projects in severely distressed cities (despite contrary regulations) and to maximize the spread of available resources among funded projects. Copyright Martinus Nijhoff Publishers bv 1981