Bounded rationality and budgeting : resource dependence, agency power, individual motivation and incrementalism in budgetary decision making

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1986

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Abstract

The purpose of the study was to examine the use of linear decision rules in the budgeting process. Subjects of the research were the 56 member agencies of a large metropolitan United Way in the southwestern United States and covered the period 1979 to 1985. A mail survey to the executive directors collected agency characteristics and MNQ personality measures. Fair Share, Maintenance and Expansion budget philosophies were the basis for seven plausible decision rules with past budget requests, allocations, inflation rate and campaign success as independent variables to predict budget request. Ordinary least squares regression was used to estimate three types of models for 1980-85; longitudinal (one model per agency), cross-sectional (one model per year) and combination (one yearly model for groups of agencies with the same longitudinal model). The models had a high degree of fit, which complicated the selection process; two-thirds had multiple R in excess of 0.99. Twenty percent of the selected models were based on a Fair Share decision rule, 25[percent] were based on a Maintenance decision rule, and 55[percent] were based on an Expansion decision rule. In a test of predictive ability, the longitudinal models significantly outperformed the other two approaches. Relative budget success was measured cross-sectionally and longitudinally. Cross-sectionally, large agencies made more modest requests and a larger proportion of their requests were approved by the United Way allocation panels. Small agencies asked for larger percentage increases and received smaller percentages of their requests. However, their budgets expanded more rapidly. Longitudinal success, i.e., higher percentages than the agency average, while not affected by size, was associated with moderate percentage increase requests. Need for achievement was associated with the directors of large agencies and need for autonomy was associated with the directors of small agencies. Agency power did not make a significant difference in budget success. The results provide some evidence linking decision rules to actual budget outcomes; (1) Agencies with a match between director's budget philosophy and longitudinal decision rule had models of higher predictive ability. (2) Decision rules were associated with success in terms of what the agency would be trying to accomplish; Expansion agencies grow the fastest, Maintenance agencies keep up with inflation, and Fair Share agency budgets grow at a rate correspondending to the increase in campaign pledges. (3) The models of agencies with a decentralized budget process are superior in predictive ability.

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Keywords

Budget--United States--Decision-making

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