The sponsor strikes back: Interacting with a budget-maximizing bureau

This thesis is in two parts. The first part is an extensive literature survey that summarizes and synthesizes several works on bureaucracy from sociology, business administration, and political science as well as economics, prominently featuring selections from Herbert Simon, Anthony Downs, William Niskanen, Migue and Belanger, and Breton and Wintrobe. The second part assumes a bureau that maximizes its budget, a la Niskanen, or its slack resources, a la Migue and Belanger, and explores, through mathematical models of bureau-sponsor interaction, the possibility for the sponsor to get a better deal from the bureau. The major conclusion is that a bureau's sponsor can extract greater surplus from the bureau by understating its demand for the bureau's service. The sponsor may do this by deceiving the bureau or by publicly binding itself, perhaps by political commitment, to a lower demand. Finally, a model is proposed where the sponsor has its own incentives for large government programs, which may reinforce the budget-maximizing bureau's tendency toward overproduction. This formulation makes explicit the usually implicit assumptions about alternative (private) suppliers of the bureau's service, and approaches the sponsor's own demand for large government output in a way different from Niskanen's.