Transparency in the Budget Process of a Bureaucratic Organisation: A Principal-Agent Model of Budgeting
Transparency has to do with the now of information among the participants to a decision-making process. In the budget process, transparency is most often looked at from that normative standpoint. In a bureaucratic organisation, a superior must often hide information from subordinates to protect the integrity of her plans. This chapter proposes a theory of budgeting based on the principal-agent theoretical framework. It provides an institutional description of the delegation structure and information asymmetry in a public university. The chapter explores the dynamics of a simple principal-agent relationship where both actors can play either transparency or opacity with regard to the budget information each one controls. To illustrate the workings of delegation and information asymmetry in budgeting, it focuses on the budget process in a public university as an example. A way of avoiding the blind budget outcome is through the modification of the preference scale of one actor.