Hostname: page-component-78c5997874-t5tsf Total loading time: 0 Render date: 2024-11-08T12:46:32.662Z Has data issue: false hasContentIssue false
  • English
  • Français

Explaining Bureaucratic Optimism: Theory and Evidence from U.S. Executive Agency Macroeconomic Forecasts

Published online by Cambridge University Press:  05 February 2007

GEORGE A. KRAUSE  and
J. KEVIN CORDER
GEORGE A. KRAUSE
Affiliation:
University of Pittsburgh
J. KEVIN CORDER
Affiliation:
Western Michigan University
Get access Rights & Permissions [Opens in a new window]

Abstract

We offer a theory of intertemporal bureaucratic decision making which proposes that an agency's forecast optimism is related to the extent to which it discounts future reputation costs associated with bureaucratic incompetence. Agency forecasts of the distant future are more likely to be optimistic than short-term forecasts. We claim that unstable organizations will discount reputation costs at a steeper rate than stable organizations, and therefore will produce more optimistic forecasts. We test our theory using macroeconomic forecasts produced by the Office of Management and Budget (OMB) and the Social Security Administration (SSA) across six forecast horizons from 1979 to 2003. The statistical results are generally consistent with our theory: OMB generates more optimistic long-term forecasts than SSA. Further, differences in forecast optimism between these executive branch agencies widen as the forecast horizon increases. Our evidence suggests that more stable agencies place a premium on minimizing reputation costs. Conversely, less stable agencies are more likely to accommodate political pressures for forecast optimism. These findings underscore the importance of institutional design for understanding how executive agencies balance the conflicting goals of political responsiveness and bureaucratic competence within the administrative state.

Type
ARTICLES
Information
American Political Science Review , Volume 101 , Issue 1 , February 2007 , pp. 129 - 142
Copyright
© 2007 by the American Political Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alesina Alberto, and Nouriel Roubini [with Gerald D. Cohen]. 1997. Political Cycles and the Macroeconomy. Cambridge, MA: MIT Press.
Banks Jeffrey S., and Barry R. Weingast. 1989. “The Political Control of Bureaucracies under Asymmetric Information.” American Journal of Political Science 36 (May): 509– 24.Google Scholar
Bartels Larry M. 2004. “Partisan Politics and the U.S. Income Distribution.” Princeton University. Typescript.
Bendor Jonathan, Serge Taylor, and Roland Van Gaalen. 1985. “Bureaucratic Expertise versus Legislative Authority: A Model of Deception and Monitoring in Budgeting.” American Political Science Review 70 (December): 1041– 60.Google Scholar
Carlsen Fredrik. 1999. “Inflation and Elections: Theory and Evidence for Six OECD Economies.” Economic Inquiry (January): 119– 35.Google Scholar
Carpenter Daniel P. 2001. The Forging of Bureaucratic Autonomy: Reputations, Networks, and Policy Innovation in Executive Agencies, 1862–1928. Princeton, NJ: Princeton University Press.
Christian Science Monitor. “West Wing Loyalty: A Fine Line.” December 17, 2002. Page 8. http://www.csmonitor.com/2002/1217/p08s03_comv.html.
Corder J. Kevin. 2005. “Managing Uncertainty: The Bias and Efficiency of Federal Macroeconomic Forecasts.” Journal of Public Administration Research and Theory 15 (January): 55– 70.Google Scholar
Ehrbeck Tilman, and Robert Waldmann. 1996. “Why Are Professional Forecasters Biased? Agency Versus Behavioral Explanations.” Quarterly Journal of Economics 111 (February): 21– 40.Google Scholar
Engstrom Erik J., and Samuel Kernell. 1999. “Serving Competing Principals: The Budget Estimates of OMB and CBO in an Era of Divided Government.” Presidential Studies Quarterly 29 (December): 820– 30.Google Scholar
Fiorina Morris P. 1981. Retrospective Voting in American National Elections. New Haven, CT: Yale University Press.
Graham John R. 1999. “Herding Among Investment Newsletters: Theory and Evidence.” Journal of Finance 54 (February): 237– 68.Google Scholar
Hansen Lars Peter, and Robert J. Hodrick. 1980. “Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis.” Journal of Political Economy 88 (October): 829– 53.Google Scholar
Heclo Hugh. 1975. “OMB and the Presidency—The Problem of ‘Neutral Competence’.” The Public Interest 38 (Winter): 80– 99.Google Scholar
Heimann C. F. Larry. 1993. “Understanding the Challenger Disaster: Organizational Structure and the Design of Reliable Systems.” American Political Science Review 87 (June): 421– 435.Google Scholar
Kamlet Mark S., David C. Mowery, and Tsai-Tsu Su. 1987. “Whom Do You Trust? An Analysis of Executive and Congressional Economic Forecasts.” Journal of Policy Analysis and Management 6 (Spring): 365– 84.Google Scholar
Kaufman Herbert A. 1956. “Emerging Conflicts in the Doctrines of Public Administration.” Public Administration Review 50 (December): 1057– 73.Google Scholar
Keech William R. 1995. Economic Politics: The Costs of Democracy. New York: Cambridge University Press.
Kezdi Gabor. 2004. “Robust Standard Error Estimation in Fixed-Effect Panel Models.” Hungarian Statistical Review Special Number 9: 95– 116.Google Scholar
Krause George A., and James W. Douglas. 2005. “Institutional Design versus Reputational Effects on Bureaucratic Performance: Evidence from U.S. Government Macroeconomic and Fiscal Projections.” Journal of Public Administration Research and Theory 15 (April): 281– 306.Google Scholar
Krause George A., and James W. Douglas. 2006. “Does Agency Competition Improve the Quality of Policy Analysis? Evidence from OMB and CBO Current Year Fiscal Projections.” Journal of Policy Analysis and Management 25 (Winter): 53– 74.Google Scholar
Kunioka Todd, and Lawrence Rothenberg. 1993. “The Politics of Bureaucratic Competition: The Case of Natural Resource Policy.” Journal of Policy Analysis and Management 12 (4): 700– 25.Google Scholar
Laster David, Paul Bennett, and In Sun Geoum. 1999. “Rational Bias in Macroeconomic Forecasts.” Quarterly Journal of Economics 114 (February): 293– 318.Google Scholar
Lewis David E. 2003. Presidents and the Politics of Agency Design: Political Insulation in the United States Government Bureaucracy, 1946–1997. Palo Alto, CA: Stanford University Press.
Lewis David E. 2005. “Staffing Alone: Unilateral Presidential Action and the Politicization of the Executive Office of the President, 1988–2004.” Presidential Studies Quarterly 35 (June): 496– 514.Google Scholar
McCubbins Mathew D., Roger D. Noll, and Barry R. Weingast. 1989. “Structure and Process, Politics and Policy: Administrative Arrangements and the Political Control of Agencies.” Virginia Law Review 75 (March): 431– 82.Google Scholar
McNees Stephen. 1995. “An Assessment of the ‘Official’ Economic Forecasts.” New England Economic Review (July/August): 13– 23.Google Scholar
Miller Gary J., and Terry M. Moe. 1983. Bureaucrats, Legislators, and the Size of Government. American Political Science Review 77 (June): 297– 322.Google Scholar
Moe Terry M. 1985. “The Politicized Presidency.” In The New Direction in American Politics, ed. John E. Chubb and Paul E. Peterson., Washington, DC: Brookings Institution, 235– 71.
Moe Terry M. 1989. “The Politics of Bureaucratic Structure.” In Can Government Govern? ed. John E. Chubb and Paul E. Peterson. Washington DC: The Brookings Institution.
Office of Management and Budget (OMB). 2005. “Former Directors of The Office of Management and Budget and The Bureau of the Budget” Retrieved July 8, 2005, from http://www.whitehouse.gov/omb/organization/former_directors.html.
Petersen Mitchell A. 2006. “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Northwestern University. Typescript.
Romer Christina D., and David H. Romer. 2000. “Federal Reserve Information and the Behavior of Interest Rates.” The American Economic Review 90 (June): 429– 57.Google Scholar
Rourke Francis E. 1992. “Responsiveness and Neutral Competence in American Bureaucracy.” Public Administration Review 52 (November/December): 539– 46.Google Scholar
Rosenblatt Robert, and Larry DeWitt. 2004. “The Role of the Chief Actuary of Social Security.” Social Security Brief (June, 2004). National Academy of Social Insurance.
Social Security Administration (SSA). 2005. The 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and the Federal Disability Insurance Trust Funds. Washington DC: U.S. Government Printing Office.
Shanker Thom. 2004. “Reserve System Needs Change, Military Experts Believe.” The New York Times.Com. July 4, 2004. http://www.nytimes.com/2004/07/04/national/04RESE.html.
The Economist. 2004. “Poor George: The Case for Pessimism About the President's Prospects [Lexington].” 371 (June 26): 38.
VandeHei Jim, and Jonathan Wiseman. 2005. “Partisan Social Security Claims Questioned: Budget Experts Say Both Sides Flawed.” Washington Post. February 27, 2005. Page A05. http://www.washingtonpost.com/wp-dyn/articles/A55797-2005Feb26.html.
Weatherford M. Stephen. 1987. “How Does Government Performance Influence Political Support?” Political Behavior 9 (1): 5– 28.Google Scholar
Williams John T., and Michael D. McGinnis. 1988. “Sophisticated Reaction in the U.S.–Soviet Arms Race: Evidence of Rational Expectations.” American Journal of Political Science 32 (November): 968– 95.Google Scholar
Wilson James Q. 1989. Bureaucracy: What Government Agencies Do and Why They Do It. New York: Basic Books.
Wooldridge Jeffrey M. 2003. “Cluster–Sample Methods in Applied Econometrics.” American Economic Review: Papers and Proceedings 93 (May): 133– 38.Google Scholar
Zellner Arnold. 1962. “An Efficient Method of Estimating Seeming Unrelated Regressions and Tests for Aggregation Bias.” Journal of the American Statistical Association 58 (June): 977– 92.Google Scholar
Submit a response

Comments

No Comments have been published for this article.