The contractual nature of budgeting: a transaction cost perspective on the design of budgeting institutions

Article Abstract:

Viewing budgets as contracts, transaction cost theory focuses on the costs of negotiating and enforcing the myriad political agreements by which policymakers allocate the government's resources. This essay provides an overview of transaction cost theory and its implications for the design of budgeting institutions. It contrasts the behavioural premises (bounded rationality and opportunism) of the transaction cost approach with those of more traditional budgetary theories, and examines whether commitment and agency costs have structured budget actors' institutional choices. Investigation of the usage of key budget instruments - entitlements, multi-year appropriations, and tax expenditures - suggests that Congress has been more discriminating in its institutional choices than is commonly supposed. Sensitivity to the importance of transaction costs would increase the effectiveness of budget reforms. (Reprinted by permission of the publisher).

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Is there a key to the normative budgeting lock?

Article Abstract:

This article explores how to answer the normative question: 'What is a good budgetary process?' It proposes that a deliberative process involving practitioners and academics could identify and justify achievably ambitious standards for budgetary processes, and the best practices for attaining those standards. In hopes of beginning that deliberation, the article sets out a prototype model, and then applies the model to the federal budgetary process. (Reprinted by permission of the publisher).

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