Discussion paper

DP2661 Budget Processes: Theory and Experimental Evidence

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.

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Citation

von Hagen, J, C Keser, R Gardner and K Ehrhart (2001), ‘DP2661 Budget Processes: Theory and Experimental Evidence‘, CEPR Discussion Paper No. 2661. CEPR Press, Paris & London. https://cepr.org/publications/dp2661