The economic theory of bureaucracy

In the western world a large part of the publicly provided services is produced by public agencies. Although there are considerable differences between governments, public production is everywhere a common phenomenon. It is useful to emphasize this fact at the outset of this chapter, because it is neither a logical necessity nor an intended result of policy design. Furthermore, it has not always prevailed in the past. Even such ‘typically public’ tasks as tax collection and national defence have in earlier times been contracted out to private persons and organizations. The great expansion of the public production sector is a development of the twentieth century, and more particularly of the latter half of that century. It is, of course, tempting to presume a relationship between this development and the expansion of the public consumption sector which has taken place in the same period; it seems as if the political authorities have shown a systematic preference for public suppliers over private ones. Whether this is true or not, and if true, whether there have been good reasons for it, can be answered only on the basis of careful positive analysis. The present chapter reviews the work in this area, and presents the basic model of agency supply.

The first attempt to theorize about production in large, state-like organizations dates back to the 1930s and is due to the German sociologist Weber (1921, 1948). To this end Weber introduced the term ‘bureau’.