Screening budgets

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

Research output: Contribution to journalArticle

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 languageEnglish (US)
Pages (from-to)351-374
Number of pages24
JournalJournal of Economic Behavior and Organization
Volume61
Issue number3
DOIs
StatePublished - Nov 1 2006
Externally publishedYes

Keywords

  • Asymmetric information
  • Budgeting
  • Screening

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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