This chapter and the next use the transactions approach to explain the institutional choices the enacting legislature makes when it turns to tax-financed bureaus to supply goods and services or distribute resources. This chapter focuses on the budget. It examines the nature of expenditure control and why so much expenditure is mandated and therefore cannot be changed without a change in the law. Chapter 5 focuses on the employment arrangements in bureaus. It examines the decline of patronage and the emergence and persistence of civil service rules that effectively constrain legislative influence over bureaucrats. It also examines the characteristic features of this merit-based system and explains those features in terms of the approach described in Chapter 2.

Tax-financed bureau production and distribution has a number of distinctive characteristics that help shape the transaction problems legislators face and the potential institutional solutions available. The taxpayers who fund the bureau are a very large group with a relatively small per capita stake in the operation of any particular bureau. The beneficiaries of bureau activity are typically in a similar position. The whole citizenry benefits from the provision of public goods like justice, foreign relations, and defense, from the provision of policy advice and from the maintenance of the social security system. Because private per capita costs and benefits of this production are often very small, there is less incentive for private interests to monitor provision or to participate in agency decision making.