ABSTRACT

We conduct two experiments to study the effect of aggregated budget proposals on budgetary slack when superiors cannot commit to an acceptance policy. Prior research on similar settings suggests preferences for fairness will lead to retaliatory behavior by the superior if the subordinate's requests are perceived as selfish. Aggregation causes costs to be more closely distributed around the mean, which decreases the possibility that subordinates will have to make abnormally large budget requests that may be viewed as selfish and hence may reduce the likelihood of rejection. Aggregation also increases the size of each budget decision. This second effect may also deter superiors from retaliating, because it becomes more costly to do so. In our first experiment we find that aggregation increases the frequency of mutually beneficial budget approval. In our second experiment we find that, although some of the increase in budget approval is due to the larger decision unit, the primary driver is the superior's incomplete appreciation for the statistical effects of aggregation.

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