Adaptive Signal Processing, Hierarchy, and Budgetary Control in Federal Regulation

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Abstract
Control over agency budgets is a critical tool of political influence in regulatory decision making, yet the causal mechanism of budgetary control is unclear. Do budgetary manipulations influence agencies by imposing resource constraints or by transmitting powerful signals to the agency? I advance and test a stochastic process model of adaptive signal processing by a hierarchical agency to address this question. The principal findings of the paper are two. First, presidents and congressional committees achieve budgetary control over agencies not by manipulating aggregate resource constraints but by transmitting powerful signals through budget shifts. Second, bureaucratic hierarchy increases the agency's response time in processing budgetary signals, limiting the efficacy of the budget as a device of political control. I also show that the magnitude of agency response to budgetary signals increased for executive-branch agencies after 1970 due to executive oversight reforms. I conclude by discussing the limits of budgetary manipulations as a device of political control and the response of elected authorities to adaptive signal processing by agencies.