Strategic responses to frontier-based budget allocation: Implications for bureaucratic slack

This paper analyzes the effect on bureaucratic slack of letting a sponsor apply a simple frontier-model in the budgetary process. The relationship between the sponsor and the bureaus is described within a simple game theoretic framework in which the sponsor is given the option of utilizing the frontier-technology when allocating a fixed budget to the bureaus. The effect on bureaucratic slack is shown to be ambiguous. However, conditions under which the sponsor benefits from applying the frontier-model are identified. It is also shown that collusion between bureaus does not destroy the possible benefit of applying the frontier-model.