The Budget Maximizing Theory and Public Schools

Economists traditionally assume that organizations are run by rationally self-interested individuals, and

(private) organizations try to minimize costs to increase their efficiency. By comparison, libertarian economist

William A. Niskanen’s budget maximizing theory assumes that public officials (i.e., civil servants such as school

district superintendents) who receive taxpayer funds from the government try to maximize the agency’s total

budget during their tenure. Since public officials typically do not receive performance-based salaries and

benefits as rewards for increasing their organization’s efficiency, as self-interested persons, they seek to

amplify their own effectiveness in largely non-monetary ways. These include increasing their public prestige,

widening their scope of activities, increasing positive outcomes, taking advantage of certain privileges,

amassing power and patronage by requesting larger annual budgets, and making management or changes

easier.51 Sometimes maximizing budgets also can mean higher salaries for these “senior bureaucrats.”52 The

increasing budget serves as a proxy for the public managers’ sense of personal worth to the organization, even

when they are highly motivated to serve the public interest.

Since evidence suggests that public organization officials systematically request larger budgets

regardless of whether the organizational output is high or low,53 public bureaus are hypothesized to produce

budgets that are larger than optimal. Hence, they yield output inefficiently or have performance deemed too low

when compared to expenditure levels.

In theory, budget maximizing helps ensure the public manager’s survival with both employees and

sponsors. In school districts, for example, superintendents and principals often use discretionary funds in ways

that keep teachers and administrators responsive, cooperative, and effective. Benefits such as tuition

reimbursement can satisfy staff and keep the organization’s reputation high. In addition, satisfied employees

are less likely to undermine leadership.

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