Coping with Uncertainty: Analyzing Risk Propensities of SEC Budgetary Decisions, 1949–97

Students of public organizations acknowledge that administrative agencies make decisions in an uncertain policy environment. Existing research on public bureaucracy either makes simplifying a priori assumptions about such behavior or completely ignores this fundamental issue. This study proposes a statistical test of agency risk-bearing behavior to shed light on bureaucratic decision making under conditions of uncertainty. An analysis of Securities and Exchange Commission (SEC) agency budget requests for the 1949–97 period yields risk coefficients that are compatible with analytically derived results. The empirical findings indicate that the SEC exhibits relatively greater concern about organizational maintenance when the type of uncertainty that it experiences is external to the decision-making purview of the organization than when it is internal to the agency. However, mixed statistical evidence is obtained that the SEC places comparatively greater value on organizational maintenance, as reflected in its budgetary decisions, during an era of greater political instability induced by divided party government than under unified government.An earlier version of this paper was presented at the annual meetings of the 1999 Public Choice Society, March 12–14, 1999, Hotel Monteleone, New Orleans, Louisiana. The author wishes to thank Janice Boucher Breuer, Charles Cameron, Brandice Canes–Wrone, Dan Carpenter, Jeffrey Cohen, Stephen Dilworth, Jim Douglas, David Epstein, Brad Gomez, Chris Kam, David Lewis, Ken Meier, Tom Romer, Andy Whitford, B. Dan Wood, LeeAnne Krause, and seminar participants at Columbia University and the University of South Carolina, and the anonymous APSR reviewers for their helpful suggestions and comments at various stages of this project. I thank Tim Groseclose and Dan Ponder for providing some of the ADA voting score data used in this paper. This paper is dedicated to the memory of Sherry Ann Krause. Any errors that remain are my own.