Screening budgets

Alexander F. Wagner; Nolan H. Miller; Richard J. Zeckhauser

doi:10.1016/j.jebo.2004.12.004

Screening budgets

Alexander F. Wagner, Nolan H. Miller, Richard J. Zeckhauser

Research output: Contribution to journal › Article › peer-review

Abstract

How should an organization's center allocate resources to units under its control which are better informed? Even with conscientious productivity reviews, important information will remain asymmetrically held. If units value their own expenditures more than those of their peers, they will seek excess budgets and expenditures. Fortunately, budget authorities can infer productivities from units' expenditure patterns across spending categories and over time. Optimal screening budgets reward more productive units with greater overall budgets. Such screening provides significant welfare gains over traditional fixed or reallocable budgets. Empirical results for a large electricity and infrastructure provider fit an important version of the model.

Original language	English (US)
Pages (from-to)	351-374
Number of pages	24
Journal	Journal of Economic Behavior and Organization
Volume	61
Issue number	3
DOIs	https://doi.org/10.1016/j.jebo.2004.12.004
State	Published - Nov 2006
Externally published	Yes

Keywords

Asymmetric information
Budgeting
Screening

ASJC Scopus subject areas

Economics and Econometrics
Organizational Behavior and Human Resource Management

Online availability

10.1016/j.jebo.2004.12.004

Library availability

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Cite this

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abstract = "How should an organization's center allocate resources to units under its control which are better informed? Even with conscientious productivity reviews, important information will remain asymmetrically held. If units value their own expenditures more than those of their peers, they will seek excess budgets and expenditures. Fortunately, budget authorities can infer productivities from units' expenditure patterns across spending categories and over time. Optimal screening budgets reward more productive units with greater overall budgets. Such screening provides significant welfare gains over traditional fixed or reallocable budgets. Empirical results for a large electricity and infrastructure provider fit an important version of the model.",

keywords = "Asymmetric information, Budgeting, Screening",

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note = "Funding Information: We thank Philippe Aghion, Alberto Alesina, George Baker, Oliver Hart, Liz Keating, Martin Weitzman as well as one anonymous referee and the editor for comments. Wagner would like to thank the Austrian Academy of Sciences for support through the APART fellowship. Copyright: Copyright 2006 Elsevier B.V., All rights reserved.",

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AU - Miller, Nolan H.

AU - Zeckhauser, Richard J.

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PY - 2006/11

Y1 - 2006/11

N2 - How should an organization's center allocate resources to units under its control which are better informed? Even with conscientious productivity reviews, important information will remain asymmetrically held. If units value their own expenditures more than those of their peers, they will seek excess budgets and expenditures. Fortunately, budget authorities can infer productivities from units' expenditure patterns across spending categories and over time. Optimal screening budgets reward more productive units with greater overall budgets. Such screening provides significant welfare gains over traditional fixed or reallocable budgets. Empirical results for a large electricity and infrastructure provider fit an important version of the model.

AB - How should an organization's center allocate resources to units under its control which are better informed? Even with conscientious productivity reviews, important information will remain asymmetrically held. If units value their own expenditures more than those of their peers, they will seek excess budgets and expenditures. Fortunately, budget authorities can infer productivities from units' expenditure patterns across spending categories and over time. Optimal screening budgets reward more productive units with greater overall budgets. Such screening provides significant welfare gains over traditional fixed or reallocable budgets. Empirical results for a large electricity and infrastructure provider fit an important version of the model.

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KW - Budgeting

KW - Screening

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Screening budgets

Abstract

Keywords

ASJC Scopus subject areas

Online availability

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