An Economic Analysis of the Choice between Line-Item Budgeting and Program Budgeting in a Not-for-Profit Setting
Resource
會計評論,29,195-222.
Journal
會計評論
Journal Issue
29
Pages
195-222
Date Issued
1995-10
Author(s)
Abstract
This paper examines the static equilibrium conditions governing the choice between line-item budgeting and program budgeting in the control of non-profit institutions. It is shown that the choice between the two alternatives depends on several factors. In situations where the ultimate goals of the institution are adequately represented by a single, non-hedonic measure of output (or joint output), line-item budgeting is likely to be more effective than program budgeting if both (a) the cost function can be described as a 'homothetic' Cobb-Douglas function and (b) the marginal utility derived by the manager of the local institution from slack in at least of one of the line item budgets is higher than that derived from equivalent output. In the general case, sufficient conditions for PBto be preferred to LIB are that (a) the production technology be marked by input complementarity or by limited input substitutability; and (b) the local manager has a higher utility for budget slack for some of the inputs than for equivalent output and the cost function does not conform to the homothetic Cobb-Douglas function .. A sufficient condition for PB to be preferred to LIB under all conditions is that the local manager's utility for output exceeds his utility for consumption of perquisites. This implies a deep commitment to the goals of the organization or a long-term view of the benefits from achieving higher output.
SDGs
Type
journal article