Working Paper: CEPR ID: DP2661
Authors: Karl-Martin Ehrhart; Roy Gardner; Jürgen von Hagen; Claudia Keser
Abstract: This Paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. We show, using structurally induced equilibrium theory, that this need not be the case. To test the implications for budget processes of structurally induced equilibrium theory, we conduct a series of experiments. The evidence from these experiments supports the predictions of structurally induced equilibrium theory, both at the aggregate and at the individual subject level.
Keywords: budget processes; experimental economics; structurally induced equilibrium
JEL Codes: C92; D71; H61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| top-down budget process (H61) | smaller overall budget (H60) |
| bottom-up budget process (H61) | larger overall budget (H61) |
| voter preferences (K16) | budget process outcomes (H61) |
| complexity in decision-making (D91) | number of periods needed to finalize decisions (D79) |
| number of spending categories (G50) | complexity in decision-making (D91) |
| incomplete information (D89) | complexity in decision-making (D91) |
| budget process structure (H61) | budget outcomes (H68) |
| rationality of voters (D72) | budget process outcomes (H61) |