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Industrial structure and monopoly power in the federal bureaucracy: an empirical analysis.

INDUSTRIAL STRUCTURE AND MONOPOLY POWER IN THE FEDERAL BUREAUCRACY: AN EMPIRICAL ANALYSIS

I. INTRODUCTION

In theories of public supply of services, bureau monopoly power plays a key role in determining output, budget, and cost levels. That bureaus have considerable monopoly power has generally been taken for granted. (1)

Margolis [1975] and Kaufman [1976], however, question the validity of this assumption. They suggest that bureaus compete, not only in the broad sense of the "invisible hand" as proposed by McKean [1965], but also in the narrower economic sense of supplying substitutable services. Borcherding [1988] comments on "...the need to establish the strength and effectiveness of competition within the public sector..." in order to determine the role of competition in public sector resource allocation.

To date there has been no direct empirical test of the assertion that individual bureaus have monopoly power. This paper presents such a test by first estimating the industrial structure of the federal sector, and by next examining the relationship between measured industrial structure and bureau monopoly power.

This investigation is limited to estimating federal industrial structure, as distinct from market structure. That is, the characteristics of bureau supply are examined, but demand characteristics are not. This approach is consistent with the focus of most existing theories that rely on the assumption of monopoly power. These theories model bureaucratic managerial behavior in supply, taking the legislative role to be primarily one of production monitoring. (2)

II. MEASURING INDUSTRIAL STRUCTURE IN THE FEDERAL SECTOR

Most bureaus are considered as independent organizations analogous to the firm in the private sector. The concept of a public sector industry is also analogous to that of a private sector industry, that is, a collection of producing organizations that supply a similar service and then compete for funds. A private sector industry is considered to be highly structured if the distribution of market shares (or some other measure of size) of the firms in the industry is significantly uneven. (3) Two commonly accepted measures of the degree of industry structure in the private sector are the concentration ratio and the Herfindahl index.

Of the two measures, the concentration ratio is cited more frequently, primarily because it is readily available. The concentration ratio measures the combined market share of a given number (usually four or eight) of the largest firms in an industry. Because it is a partial and aggregate measure of industry structure, the concentration ratio provides limited information on the firms included in the ratio.

The Herfindahl index measures the dispersion of firm size within an industry by summing squared market shares of each firm. It is generally considered a better indicator of overall industry structure and competitive level within an industry than the concentration ratio because it usually incorporates information on market shares of all firms in an industry rather than overall concentration of a few large firms. The more limited use of the Herfindahl index may be attributed to its extensive data requirements.

Each of these measures is used to estimate industrial structure of the federal sector. To determine public sector industry structure, budget and expenditure data on federal funds (general and special funds) were obtained from the Budget of the United States Government, Appendix at the agency level for all bureaus active in either of two fiscal years, FY 1985 and FY 1980. (4,5) Data on nearly 300 federal organizations have been examined for each fiscal year. FY 1985 is the most recent fiscal year for which actual rather than estimated data are available. FY 1980 was chosen because a five-year interval should be reasonable for comparative purposes, and is consistent with the practice for similar calculations made for the private sector.

Bureau data on current appropriations are used for market share data to calculate both the Herfindahl index and concentration ratio. Bureaus compete for congressional review committee appropriations much as firms compete for consumers' dollars. Appropriations data were therefore chosen on the basis that they more accurately reflect market shares than do other agency data, including direct cost, obligations, or outlays.

To test the sensitivity of the results to the choice of current appropriations for market share proxy, an alternative measure relying on outlays is also employed. (6) Outlays are actual expenditures by a bureau in the production of its service. Consequently, the value of bureau outlays may be considered a rough proxy for its production level. Wile not precisely equivalent to market share, outlays represent a level of bureau activity (i.e., services provided) during that fiscal year. Accordingly, the Herfindahl index and concentration ratio are also calculated on the basis of actual bureau outlays for FY 1985 and FY 1980.

Industry categories are based on those defined in the Standard Industrial Classification (SIC) Manual [1987] at the four-digit level. The rationale for employing the SIC system is as follows. First, the use of the SIC system avoids the bias of arbitrary classifications whose basis and purpose would be questionable. The SIC codes have been developed to reflect as accurately as possible the supply of similar goods or services within any given classification rather than to achieve some analytical purpose. Accordingly, their use reflects the existing industrial structure of the U.S. economy, both private and public. The purpose here is simply to determine whether or not federal bureaus, as presently structured, may be properly characterized as monopolies, i.e., sole suppliers of a given service. The use of SIC codes, being objectively determined, is consistent with this purpose.

Second, SIC categories may not precisely coincide with the structure of the congressional subcommittees that determine initial recommendations for appropriations funding. A careful public sector market analysis would require detailed empirical data on the demand structure as well as that of supply. Although the focus here is on public sector industries, a cursory examination of certain demand characteristics such as given in Cowart [1981] indicates that subcommittees generally review a more broadly based set of services than that defined by the SIC codes. To the extent that this is the case, use of SIC codes would understate the degree of competition found here.

Finally, use of SIC codes is standard practice in studies of private sector industries. That imperfections exist in the use of SIC codes for the private sector is well known. For example, private sector studies classify firms by primary activity, even though there may be considerable variation in output produced by a single firm. Analysis of the public sector with the use of SIC codes is certainly subject to the same imperfections, but should still provide a useful starting point for analysis.

An industry studies of the private sector, a bureau's primary activity is use here for classification into SIC four-digit industries. A number of bureaus, like firms, provide services that fit into more than one SIC four-digit industry. For example, the Soil Conservation Service of the Department of Agriculture provides services related to both conservation of land (9512) and water (9511) resources. And the Bureau of Indian Affairs of the Department of the Interior provides a variety of services that include housing (9531), water and land resource conservation (9511 and 9512), and social welfare benefits (9441). Complete breakdowns of bureau activities are generally unavailable. For those bureaus where activity breakdowns are provided in the U.S. Budget Appendix, these breakdowns are given for the category of direct program cost only. The percent of bureau activity in each industry could be calculated from these cost data. Applying this to market share values assumes, however, that these calculated percentages are equally applicable to the given values for actual current appropriations and actual outlays, which is not likely to be the case.

One possible objection to classification by primary activity could be that certain public services, such as police activities (i.e., providing law enforcement rather than monitoring standards) or regulating labor, would operate in every one of the SIC categories. This problem should not be considered unique to public sector analysis, however; tha same method for classifying firms is employed in private sector industry studies where, for example, firms may also provide security and personnel services as secondary activities. To the extent that some service may be a secondary activity of a bureau classified elsewhere, the level of competition measured by the approach in this paper would be understated.

This comprehensive study of the federal sector includes bureaus from the legislative, judicial, and executive branches, including departments and independent agencies. The SIC four-digit industries that are relevant to the public sector are provided below in Table I, along with abbreviated industry descriptions. A list of bureaus included in each SIC industry is given in the appendix.

In some cases, a bureau's title is not a clear indication of its primary activity or function. For approximately 10 percent of the total number of bureaus additional research was required to determine the appropriate industry classification.

III. EMPIRICAL RESULTS

The resulting calculations of the Herfindahl index and concentration ratio are tabulated below by SIC four-digit industry. Table II presents the results based on actual current appropriations data for FY 1985 and FY 1980.

The four-bureau concentration ratios in both years depict a relatively high degree of structure in most industry categories. There are five industries in FY 1985 that are somewhat less structured, with the concentration ratio less than seventy. In no case, however, is the four-bureau concentration ratio less than fifty. In the private sector, this is frequently cited as a basis to conclude that the four largest firms in such an industry have potential market power. The largest number of bureaus in any public sector industry studied here is only thirty-four, however. A four-bureau concentration ratio may therefore be less appropriate as a measure of industry structure here than is a four-firm concentration ratio in the private sector. The Herfindahl index then represents a more meaningful measure of industry structure in the public sector.

For the Herfindahl index a value of one indicates pure monopoly structure in an industry. The lower the value, the less structured is the industry. The Herfindahl index values calculated here give a much different interpretation of industry structure in the public sector than does the concentration ratio. Of the thirty-eight industry categories in FY 1985, nearly half (seventeen) have a Herfindahl index less than 0.5000. Of these, ten have a Herfindahl index value less than 0.3333 and six have a Herfindahl index of less than 0.2000. In FY 1980, the results are similar: for sixteen industries, the Herfindahl index is less than 0.5000, and of these, thirteen have a Herfindahl index less than 0.3333 and four have a Herfindahl index less than 0.2000. The relatively even distribution of market shares among bureaus indicates that within these industries no single bureau dominates actual funding. An alternative interpretation is that no one bureau has exhibited significant leverage in bargaining for funding to provide a service similar to that provided by any other bureau.

There are a few noticeable differences between the two fiscal year results, such as in SIC 9229. In this case, in FY 1980 the Herfindahl index is 0.8826, while in FY 1985 the Herfindahl index is 0.5462. The smaller value for the Herfindahl index in the later year is partly a result of the presence of a third bureau, and partly a result of a different distribution in market shares between the two bureaus that existed in FY 1980. The smaller value in the later year appears to reflect a less structured industry.

Table III presents the results based on current outlays as an alternative measure of market share. The results in both years are similar to those for current appropriations.

In FY 1985, eighteen SIC industries have a Herfindahl index less than 0.5000. Of these, ten have a Herfindahl index less than 0.3333 and six have a Herfindahl index less than 0.2000. In FY 1980, sixteen industries have a Herfindahl index less than 0.5000, thirteen of these with a Herfindahl index less than 0.3333 and six with a Herfindahl index less than 0.2000. There is again some noticeable difference in the results of the two fiscal years in SIC 9229 that reflects less structure in FY 1985 than in FY 1980. In general, although the specific values vary for the two measures of market shares, the pattern of results from current outlays reflects that from current appropriations. This indicates that even under alternative definitions of market shares there are clearly some federal sector industries where monopoly structure is limited, if not absent.

The Herfindahl index, like any other index, is not a perfect measure of actual competition for either the private sector or the public sector. At the least, however, it does give an acceptable measure of potential competition among organizations. As in the private sector, any given standard industrial classification exhibits some product differentiation. Indeed, Breton and Wintrobe [1975] and Kaufman [1976] term this "overlapping jurisdictions." This can be regarded at a minimum as potential competition, where one bureau has the capacity to provide the service of another bureau. Overlapping jurisdictions is also consistent with the notion of a contestable market, where the threat of entry is sufficient to provide competitive pressure and discipline on incumbent organizations, as described by Baumol, Panzar, and Willig [1982]. Examples of this include the Federal Bureau of Investigation (Justice Department) and the Federal Law Enforcement Training Center (Treasury Department), or the National Labor Relations Board (Independent) and the Labor-Management Services Administration (Labor Department).

Estimates in this paper suggest that the overall structure of the federal sector is more oligopolistic than monopolistic. For most of the four-digit industrial classifications there are three or more agencies that supply services in that category. Even in those industries with a relatively large number of bureaus (more than ten, say), typically several bureaus have quite small market shares. These bureaus may constitute a "competitive fringe" surrounding the major suppliers.

The results given here should be considered upper-bond estimates of monopoly structure for two reasons. First, the results capture industry structure within the federal sector only. Including organizations from state or local government, the private sector (nonprofit organizations or proprietary firms) or the foreign sector would lower both the Herfindahl index and concentration ratio in all SIC categories that face competition from these organizations. That competition is potentially important. For example, in FY 1985 there are ten industries in which the Herfindahl index is either exactly or approximately one. The bureaus in nine of these, however, face competition from both nonprofit and proprietary organizations in the private sector or from state and local government agencies, such as hospital care, nursing home care, libraries, printing, museums, insurance, etc. The one remaining industry, 9661 (space research and technology), could possibly be considered a pure monopoly, since there is only one federal bureau, NASA, directly involved with space activities, with no state or local agencies involved. Even NASA may face some competition from independent laboratories or other private sector organizations that supply space research, or from the foreign sector. (7)

A second reason that the results reported here represent an upper bound of monopoly structure in the federal sector is the classification of bureaus by primary activity. A cursory examination of the raw data suggests that if all bureau activities could be attributed to the appropriate SIC four-digit industry, the number of bureaus included in any given industry would most often increase. In addition, the distribution of market shares would likely become more even in a number of industry categories. This would reduce the measured Herfindahl index values, indicating even greater potential competition.

IV. MONOPOLY POWER IN THE FEDERAL SECTOR: AN ASSESSMENT

The purpose of this investigation is to test the assertion that individual bureaus have monopoly power, as centrally assumed in many existing theories of bureau supply. The empirical results indicate a lack of monopoly structure within the federal sector. To what extent do these results question the assumption of monopoly power?

Within traditional industrial organization theory, structure, conduct and performance are clearly related. Indeed, Niskanen and others have as a basic premise of their models that a bureau's monopoly power is derived from its position as a sole supplier of its service. The estimated values of the Herfindahl index indicate that bureaus are frequently not sole suppliers.

A lower value of the Herfindahl index indicates that bureaus within an industry are more evenly matched (i.e., funded for a similar service) and can therefore be considered more competitive. This is the case even in industries where the number of bureaus is small. In Table II, for example, the police protection industry (SIC 9221), where the number of bureaus is only six, has low Herfindahl index values of 0.2902 and 0.2649 in FY 1985 and FY 1980. This suggests that these bureaus are likely to behave more as competitors than as monopolists. This behavioral interpretation is consistent with observations of private sector oligopolies where firms are highly competitive either through price or nonprice strategies, such as in the airline and cereal industries. This behavior is not considered in most public supply models. The results here of limited monopoly structure within the federal bureaucracy therefore do not support these models on the grounds of traditional theory.

Recent developments in the industrial organization literature on contestable markets advanced by Baumol, Panzar and Willig [1982] suggest that structure, as represented by industry concentration, for example, does not imply monopoly power and inefficient performance. This approach proposes instead that a market is contestable if there exists effective or potential competition through the possibility of entry even if that entry would be temporary.

The overlapping jurisdictions of bureaus within a given SIC code, where at least one bureau has the capacity to provide the service of another, permits the threat of potential entry. Even in those industries that are measured as monopolistic, the bureau faces (at least potential) competitive pressure from sources external to the federal government: state and loal govenment agencies, private for-profit and nonprofit organizations, and the foreign sector. Examples include the U.S. Postal Service (SIC 4311), insurance (SIC 6311 and 6331), hospitals and medical care (SIC 8062), social services (SIC 8322 and 8399), and space research and technology (SIC 9661). Such industries could be properly considered contestable, and would be expected to exhibit behavior that leads to efficient rather than inefficient performance. For this reason the results here, when interpreted on alternative grounds of contestable market theory, again do not support models that predict inefficiency as a result of monopoly power.

Measures of industry structure may also provide an indication of sources as well as the degree of potential compeition faced by bureaus within the federal sector. For some industries with relatively low Herfindahl index values, the sources of (at least) potential competition come from within the federal sector itself. The lower the Herfindahl index, the greater is this internally generated competitive pressure. Relatively high values for the Herfindahl index, however, may not indicate that monopoly power exists. Such values may suggest instead that organizations external to the federal sector are sources of potential competitive pressure. Such industries, while not estimated to be competitively structured within the federal sector, may in fact be contestable. Where this is the case, bureaus would behave less inefficiently than has previously been thought.

If the Civil Service system that exists in the federal public sector facilitates interbureau cooperation and limits entry into the production of publicly supplied services as argued by Borcherding, Bush, and Spann [1977], then contestability by private sector organizations (where no Civil Service system exists) is more limited than the results here suggest. The premise of contestability, however, is based on the threat of potential entry rather than on actual entry. Even with a Civil Service system, bureaucrats may perceive private sector organizations as potential competitors, particularly in view of a political climate that promotes "privatization" of publicly supplied services to promote efficiency in their production. Contestability may therefore be most relevant in those industries subject to the threat of privatization. The industries with the greatest threat of privatization are those where similar services are already provided by private sector firms. These are the industries which have a measured Herfindahl index close to one, and which therefore appear to be least competitively structured. Despite the existence of the Civil Service system, these public sector industries may therefore be considered contestable.

With respect to public sector organizations, potential entry may be a greater threat if one bureau seeks to expand relative to another bureau by acting on its overlapping jurisdiction. This action might violate the trust accumulated between bureaus, as argued by Breton and Wintrobe [1982], but such action would occur if the benefits of potential funding outweight the cost of reducing trust. The recent "redefinition" by the Bureau of Reclamation of its mission from construction of water resource projects to environmental and conservation-related activities may reflect such a situation. The benefits to the Bureau of Reclamation of survival in a political climate increasingly hostile to large water resource projects would likely be greater than the cost of reducing trust that may have accumulated between itself, the Environmental Protection Agency, U.S. Fish and Wildlife Service, or any other related federal bureau. While cases of bureaus actually entering into the jurisdiction of another bureau may not occur frequently, the threat of potential entry may be very real and may be sufficient to generate less inefficiency within the public sector than has previously been thought.

V. CONCLUSIONS

This paper presents an initial attempt to examine empirically monopoly power in the federal sector. The results advanced here, although not conclusive, suggest that there is considerable variation in the competitiveness of bureaus, both within and across industrial classifications. The critical assumption of bureau monopoly power in the federal sector is found to be questionable at best in a number of industry categories. In addition, consideration of externally generated competition would reduce estimated monopoly structure.

This surprising degree of competitiveness has many important implications. First, in the absence of monopoly power, a bureau manager could not extract the consumers' surplus of the congressional review committee. Second, limited monopoly power may affect the ability of a bureau manager to obtain funding; bureaucrats would therefore be more constrained in their attempt to maximize either gross or net budget (or output), as proposed by Niskanen [1975], Migue and Belanger [1974], and Orzechowski [1977], for example. Third, the existence of even potential competition, whether from within or outside of the federal bureaucracy, may lead to variations in bureau managerial behavior. One possible result is that potential competition may discipline bureau managers to perform efficiently. An alternative possibility is that competition may influence their strategies to increase appropriations, such as altering the input and/or output mix in accordance with the political interests of the review committee members.

The results of this study are useful in that they present an alternative view of the federal sector that heretofore has been assumed to be highly monopolistic and correspondingly inefficient. Admittedly, the results are preliminary, yet they provide systematic information on the existence of the number and size of agencies within service categories that had not previously been established. Further empirical analysis may be warranted to determine the validity of predictions of existing theories of bureau supply tht critically depend on the assumption of monopoly power.

For one thing, the federal sector appears to be structured along oligopolistic lines. Besides the potential for efficiency that could result in those industries that are contestable, there is also the potential for alternative behavior that is possible under conditions of oligopoly, such as collusion. A possible motive for such behavior in the federal sector would be to obtain monopoly power as a means to obtain greater funding. Campbell [1984] has documented at least one case of collusive behavior in the federal sector for this purpose. The results here may be useful as a starting point for detection and analysis of additional cases of collusive behavior.

Second, incorporating supply characteristics of the approach here with (legislative) demand characteristics would permit analysis of market structure rather than industry structure. Behavior of review committee members when bureaus collude could be examined. One could then possibly estimate the tradeoff of transactions costs of legislative monitoring and the cost of collusion or other opportunistic bureaucratic behavior.

Third, the approach taken here to measure industry structure could be refined. An alternative industrial classification system could be developed. Alternatively, bureau activities could be separated out to avoid classifying bureaus by primary activity. Each of these refinements would require specific limiting assumptions, but could serve as a sensitivity analysis of the results given here.

Finally, estimates of federal industry structure could be used to test predictions of existing theories--for example, whether budget growth over time is positively related to this structure. This would provide additional empirical analysis of the extent to which highly structured federal sector industries are contestable; or if, within the federal sector, structure does reflect monopoly power. If further studies indicate that bureau monopoly power does not exist, as has been suggested here, an alternative theory of public sector supply may be required to explain the frequently observed inefficiency of, and possible overproduction by, government agencies.

Appendix

F ederal Bureaus by SIC - FY 1985

Department bureau affiliation codes:

AGR: Agriculture

COM: Commerce DOD-CIV: Defense--Civil DOD-MIL: Defense--Military EDUC: Education ENER: Energy HHS: Health and Human Services HUD: Housing and Urban Development INT: Interior JUST: Justice LABOR: Labor STATE: State TRANS: Transportation TREAS: Treasury

Other (nondepartment) bureau affiliation codes:

EXEC: Executive Branch LEG: Legislative Branch JUD: Judiciary IND: Independent

SIC Bureau (Affiliation)

4311 U.S. Postal Service (IND)

6311 Veterans Administration - insurance (IND)

6331 Federal Crop Insurance Corp. (AGR)

6371 Railroad Retirement Board (IND)

8062 Veterans Administration - medical (IND)

8111 Legal Services Corporation (IND) Defender Services (JUD)

8231 Library of Congress (LEG) National Libray of Medicine (HHS) Office of Superintendent of Documents (LEG) National Agricultural Library (AGR) National Commission on Libraries and Information Science (IND)

8322 Disaster Relief Fund (EXEC) U.S. Parole Commission (JUST)

8399 Action (IND)

8412 Smithsonian Institution (IND) National Gallery of Art (IND) Woodrow Wilson International Center (IND)

8422 Botanic Gardens (LEG)

8733 National Cancer Institute (HHS) National Heart, Lung, and Blood Institute (HHS) National Institute of Arthritis, Diabetes, Digestive and Kidney Diseases (HHS) National Institute of General Medical SErvices (HHS) National Institute of Neurological and Communicative DIsorders and Stroke (HHS) National Institute of Allergy and Infectious Diseases (HHS) National Institute of Child Health and Human Development (HHS) Research Resources (HHS) National Institute of Environmental Health Services (HHS) National Eye Institute (HHS) National Institute on Aging (HHS) National Institute of Dental Research (HHS) Office of the Director, NIH (HHS) Buildings and Facilities, NIH (HHS) John E. Fogarty International Center (HHS)

9199 Federal Emergency Management Agency (IND) General Services Administration (IND) Office of Territorial and international Affaris (INT) Office of Personnel Management (IND) Architect of the Capital (LEG) National Archives and Records Administration (IND) Government Printing Office (LEG) Community Relations Service (JUST) Office of Inspector General (TRANS) Administrative Office of the U.S. Courts (JUD) Merit Systems Protection Board (IND) Office of Inspector General (INT) Office of Administration (EXEC) Commission on Civil Rights (IND) Federal Election Commissions (IND) American Battle Monuments Commission (IND) Federal Judicial Center (JUD) Office Governmental and Public Affaris (AGR) Fair Housing and Equal Opportunity (HUD) U.S. Holocaust Memorial Council (IND) Advisory Commission on Intergovernmental Relations (IND) Administrative Conference of the U.S. (IND) Advisory Commission on Federal Pay (IND) Unanticipated Needs Fund (EXEC) Commission on Executive, Legislative, and Judicial Salaries (IND) Bicentennial Expenses (JUD)

9211 Courts of Appeals, District Courts, and other Judicial Services (JUD) Bankruptcy Courts (JUD) U.S. Tax Court (LEG) Supreme Court of the U.S. (JUD) U.S. Court of International Trade (JUD) U.S. Court of Appeals for the Federal Circuit (JUD) Special Rail Reorganization Court (JUD)

9221 Federal Bureau of Investigation (JUST) Immigration and Naturalization Service (JUST) Drug Enforcement Administration (JUST) U.S. Secret Service (TREAS) Bureau of Alcohol, Tobacco, and Firearms (TREAS) Federal Law Enforcement Training Center (TREAS)

9222 U.S. Attorneys and Oversight of Bankruptcy (JUST) General Legal Activities (JUST) Antitrust Division (JUST) Fees and Expenses of Witnesses (JUST) Office of the Solicitor (INT) Foreign Claims Settlement Commission (JUST)

9223 Federal Prison System (JUST) Support of U.S. Prisoners (JUST)

9229 Office of Justice Assistance Programs (JUST) Interagency Law Enforcement (JUST) General Administration (JUST)

9311 Internal Revenue Service (TREAS) U.S. Customs Service (TREAS) Financial Management Service (TREAS) General Accounting Office (LEG) Bureau of the Public Debt (TREAS) Office of the Secretary (TREAS) International Monetary Programs (EXEC) U.S. Mint (TREAS) Office of Management and Budget (EXEC) Congressional Budget Office (LEG) Office of Revenue Sharing (TREAS)

9411 Office of Postsecondary Education (EDUC) Office of Elementary and Secondary Education (EDUC) Office of Special Education and Rehabilitative Services (EDUC) Office of Vocational And Adult Education (EDUC) National Foundation of the Arts and the Humanities (EDUC) Department Management (EDUC) Office of Bilingual Education and Minority Languages Affairs (EDUC) Office of Educational Research and Improvement (EDUC)

9431 Health Resources and Services Administration (HHS) Alcohol, Drug Abuse, and Mental Health Administration (HHS) Food and Drug Administration (HHS) Centers for Disease Control (HHS) Office of Assistant Secretary (HHS)

9441 Healt Care Financing Administration (HHS) Social Security Administration (HHS) Food and Nutrition Service (AGR) Office of Human Development Services (HHS) Employment and Training Administration (LABOR) Bureau of Indian Affairs (INT) Department Management (HHS) Equal Employment Opportunity Commission (IND) Navajo and Hopi Indian RElocation Commission (IND) Human Nutrition Information Service (AGR) Architectural and Transportation Barriers Compliance Board (IND) National Council on the Handicapped (IND) Committee for Purchase from the Blind and Other Severely Handicapped (IND) Prospective Payment Assessment Commission (LEG)

9451 Veterans Administration - nonmedial, noninsurance (IND) Department of the Army - cemeterial services (DOD-CIV)

9511 Environmental Protection Agency (IND) Army Corps of Engineers (DOD-CIV) Bureau of Reclamation (INT) Council of Environmental Quality and Office of Environmental Quality (EXEC) Delaware River Basin Commission (IND) Susquehanna River Basin Commission (IND) Water Resources Council (IND)

9512 Energy Supply, Research, and Development Activities (ENER) Alternative Fuels Production (ENER) Forest Service (AGR) National Oceanic and Atmospheric Administration (COM) National Park Service (INT) Soil Conservation Service (AGR) Bureau of Land Management (INT) U.S. Geological Survey (INT) U.S. Fish and Wildlife Service (INT) Fossil Energy Research and Development (ENER) Office of Surface Mining and REclamation Enforcement (INT) Minerals Management Service (INT) Bureau of Mines (INT) Office of the Secretary (INT) Forest and Wildlife Conservation, Military Reservations (DOD-CIV) Marine Mammal Commission (IND) National Critical Material Council (EXEC)

9531 Rent Supplement Program (HUD) Public and Indian Housing Program (HUD) Management and Administration (HUD) Policy Development and Research (HUD) Congregate Services Program (HUD) Housing Counseling Assistance (HUD)

9532 Community Development Grants Program (HUD) Urban Development Action Grants Program (HUD) Appalachian Regional Commission (IND) Urban Homesteading Program (HUD) Pennsylvania Avenue Development Corporation (IND) National Capital Planning Commission (IND) Advisory Council on Historic Preservation (IND) Commission on Fine Arts - Capitol Building (IND)

9611 National Science Foundation (IND) General Science and Research Activities (ENER) Energy Conservation Programs (ENER) Department Administration (ENER) Small Business Administration (IND) Strategic Petroleum Reserve Program (ENER) International Trade Administration (COM) Bureau of the Census (COM) Bureau of Labor Statistics (LABOR) Department of Management (LABOR) Patent and Trademark Office (COM) Foreign Agricultural Service (AGR) Federal Trade Commission (IND) Statistical Reporting Service (AGR) Minority Business Development Agency (COM) Energy Information Administration (ENER) Economic Research Service (AGR) Economic and Statistical Analysis (COM) Consumer Product Safety Commission (IND) General Administration (COM) Economic Development Administration (COM) Solar Energy and Energy Conservation Bank (HUD) International Trade Commission (IND) Office of Technology Assessment (LEG) Office of U.S. Trade Representative (EXEC) U.S. Travel and Tourism Administration (COM) Emergency Preparedness Program (ENER) Office of Policy Development (EXEC) Council of Economic Advisers (EXEC) Office of Consumer Affairs (HHS) Office of Science and Technology Policy (EXEC) World Agricultural Outlook Board (AGR)

9621 Coast Guard (TRANS) Federal Aviation Administration (TRANS) Federal Highway Administration (TRANS) Federal Railroad Administration (TRANS) Maritime Administration (TRANS) Washington Metropolitan Area Transit Authority (IND) Urban Mass Transit Administration (TRANS) National Highway Traffic Safety Administration (TRANS) Office of the Secretary (TRANS) Interstate Commerce Commission (IND) Research and Special Program Administration (TRANS) National Transportation Safety Board (IND) Federal Maritime Commission (IND) Civil Aeronautics Board (IND) United States Railway Association (IND) Office of Transportation (AGR) Railroad Accounting Principles Board (LEG) 9631 Uranium Supply and Enrichment Activities (ENER) Nuclear Regulatory Commission (IND) Nuclear Waste Disposal Fund (ENER) Western Area Power Administration (ENER) Corporation for Public Broadcasting (IND) Federal Energy Regulatory Commission (ENER) Federal Communications Commission (IND) Southwestern Power Administration (ENER) Rural Electrification Administration (AGR) Economic regulation (ENER) National Telecommunications and Information Administration (COM) Southeastern Power Administration (ENER) Alaska Power Administration (ENER) Copyright Royalty Tribunal (LEG)

9641 Farmers Home Administration (AGR) Agricultural Research Service (AGR) Food Safety and Inspection Service (AGR) Animal and Plant Health Inspection Service (AGR) Agricultural Stabilization and Conservation Service (AGR) Cooperative State Research Service (AGR) Agricultural Marketing Service (AGR) Department Administration (AGR) Federal Grain Inspection Service (AGR) Office of the Secretary (AGR) Agricultural Cooperative Service (AGR)

9651 Occupational Safety and Health Administration (LABOR) Employment Standards Administration (LABOR) Mine Safety and Health Administration (LABOR) National Labor Relations Board (IND) National Bureau of Standards (COM) Securities and Exchange Commission (IND) Labor-Management Services Administration (LABOR) Commodity Futures Trading Commission (IND) Federal Mediation and Conciliation Service (IND) Federal Labor Relations Authority (IND) Occupational Safety and Health Review Commission (IND) National Mediation Board (IND) Federal Mine Safety and Health Review Commissions (IND)

9661 National Aeronautics and Space Administration (IND)

9711 Air Force (DOD-MIL) Navy (DOD-MIL) Army (DOD-MIL) Defense Agencies Activities (DOD-MIL) Marine Corps (DOD-MIL) Atomic Energy Defense Activities (ENER) Army National Guard (DOD-MIL) Air National Guard (DOD-MIL) Selective Service System (IND) Intelligence Community Staff (IND) National Security Council (EXEC) Central Intelligence Agency (IND)

9721 International Security Assistance (EXEC) Agency for International Development (EXEC) International Development Assistance (EXEC) Administration of Foreign Affairs (STATE) U.S. Information Agency (IND) International Organizations and Conferences (STATE) Panama Canal Commission (IND) Migration and Refugee Assistance (STATE) Peace Corps (EXEC) Board for International Broadcasting (IND) International Narcotics Control (STATE) International Commissions (STATE) Arms Control and Disarmament Agency (IND) Office of International Cooperation and Development (AGR) International Commodity Agreements (EXEC) Trade and Development Programs (EXEC) Asia Foundation (STATE) African Development Foundation (EXEC) Japan-U.S. Friendship Commission (IND) Anti-Terrorism Assistance (STATE) International Center, Washington, D.C. (STATE) Commission on Security and Cooperation in Europe (LEG)

(1.) For example, Niskanen [1971; 1975], Migue and Belanger [1974], and Orzechowski [1977] argue that monopoly power of bureaus results in higher unit costs, excessive budgets and (possibly) larger than optimal output levels. Other models that consider or imply monopoly power include Breton and Wintrobe [1975], Lindsay [1976], Spencer ]1980; 1982], Weingast, Shepsle, and Johnsen [1981], and Weingast [1984]. In addition, much of the empirical work concerning the relative efficiency of privately and publicly produced services is based on the notion of a bureau as a sole supplier. For a discussion of a number of these empirical studies, see Spann [1977].

(2.) Exceptions to this are Weingast, Shepsle and Johnsen [1981] and Weingast [1984] who examine congressional behavior and constituent monitoring rather than bureaucratic behavior to determine public supply of services.

(3.) A small number of firms is not a sufficient condition for establishing market power if the firms are of similar (large) size, which would allow for considerable competition. The recent wave of mergers in the airline industry, for example, can be considered an indication of the move toward more evenly distributed market shares and more effective competition among the resulting fewer (and therefore larger) firms.

(4.) Bureau activities classified under the categories of public enterprise funds and intragovernmental funds were excluded because these activities do not rely on appropriations as their major source of funding. Bureau activities classified under trust funds were similarly excluded.

(5.) "Agency" or "bureau" is defined here to include any individual public secor organization that is involved in activities that result in a service being provided to the public. In the Budget of the United States Government, Appendix for each fiscal year, such an organization may be designated by any of the following terms: bureau, agency, institute, office, commission, conference, council, program, or fund. The last two designations have been included when they fit the definition given above, but excluded when they represent a single activity within a defined organization.

(6.) Leamer [1985] emphasizes the use of sensitivity analyses as an appropriate methodological technique.

(7.) The policy to promote direct commercial development of space technology was favored by the Reagan administration, particularly after the space shuttle disaster of January 1986.

REFERENCES

Baumol, William J., John C. Panzar, and Robert D. Willig. Contestable Markets and the Theory of Industry Structure. San Diego: Harcourt, Brace Jovanovich, 1982.

Borcherding, Thomas E. "Some Revisionist Thoughts on the Theory of Public Bureaucracy." European Journal of Political Economy, vol. 4/extra issue, 1988, 47-64.

Borcherding, Thomas E., Winston C. Bush, and Robert M. Spann. "The Effects on Public Spending of the Divisibility of Public Outputs in Consumption, Bureaucratic Power, and the Size of the Tax-Sharing Group," in Budgets and Bureaucrats, edited by Thomas E. Borcherding. Durham, NC: Duke University Press, 1977, 211-28.

Breton, Albert and Ronald Wintrobe. "The Equilibrium Size of a Budget-Maximizing Bureau: A Note on Niskanen's Theory of Bureaucracy." Journal of Political Economy, February 1975, 195-207.

Breton, Albert and Ronald Wintrobe. The Logic of Bureaucratic Conduct. New York: Cambridge University Press, 1982.

Campbell, Donald C. "The Pick-Sloan Program: a Case of Bureaucratic Economic Power." Journal of Economic Issues, June 1984, 449-56.

Cowart, Susan C. "Representation of High-Demand Constituencies on Review Committees: A Research Note." Public Choice, 37, 1981, 337-42.

Kaufman, H. Are Government Organizations Immortal? Washington, D.C.: The Brookings Institution, 1976.

Leamer, Edward E. "Sensitivity Analyses Would Help." American Economic Review, June 1985, 308-13.

Lindsay, Cotton M. "A Theory of Government Enterprise." Journal of Political Economy, October 1976, 1061-77.

Margolis, Julius. "Comment". Journal of Law and Economics, December 1975, 645-59.

McKean, Ronald, N. "The Unseen Hand in Government." American Economic Review, June 1965, 495-505.

Migue, Jean-Luc and Gerard Belanger. "Toward a General Theory of Managerial Discretion." Public Choice, Spring 1974, 27-43.

Niskanen, William A. Bureaucracy and Representative Government. Chicago: Aldine Atherton, 1971.

Niskanen, William A. "Bureaucrats and Politicians." Journal of LAw and Economics, December 1975, 617-43.

Office of Management and Budget. Appendix, Budget of the United States Government, Fiscal Year 1987. Washington, D.C.: U.S. Government Printing Office, 1986.

Office of Management and Budget. Appendix, Budget of the United States Government, Fiscal Year 1982. Washington, D.C.: U.S. Government Printing Office, 1981.

Office of Management and Budget. Standard Industrial Classification Manual. Washington, D.C. U.S. Government Printing Office, 1987.

Orzechowski, William. "Economic Models of Bureaucracy: Survey, Extension, and Evidence," in Budgets and Bureaucrats, edited by Thomas E. Borcherding. Durham, NC: Duke University Press, 1977, 229-59.

Spann, Robert M. "Public versus Private Provision of Governmental Services," in budgets and Bureaucrats, edited by Thomas E. Borcherding. Durham, NC: Duke University Press, 71-89.

Spencer, Barbara. "Outside Information and the Degree of Monopoly Power of a Public Bureau." Southern Economic Journal, July 1980, 228-33.

Spencer, Barbara. "Asymmetric Information and Excessive Budgets in government Bureaucracies--A Principal and Agent Approach." Journal of Economic Behavior and Organization, June/September 1982, 197-224.

Weingast, Barry R. "The Congressional-Bureaucratic System: A Principal-Agent Perspective (with Application to the SEC)." Public Choice, 44, 1984, 147-91.

Weingast, Barry R., Kenneth A. Shepsle, and Christopher Johnsen. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics." Jounal of Political Economy, August 1981, 642-64.
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