Migu� and B�langer on managerial discretion: A note

Abstract

In Public Choice 17, Spring 1974, Jean Luc Migu6 and Gerard B61anger published 'Toward a general theory of managerial discretion'. The gist of their contribution is that the single target utility function of neoclassical theory (profit maximization) and Niskanen's theory of bureaucracy (output maximization) can be captured in a general utility function which contains two variables: the external or formal goal of the organization as well as its internal or informal objective. Neoclassical theory and the theory of bureaucracy can be analyzed then as special cases of a general theory of managerial discretion. This fruitful idea had been developed ten years earlier by Williamson (1963) and was applied by him to the for profit firm and public utility. Migu6 and B61anger have been the first to apply it to non profit organizations and government bureaus. Unfortunately, they have jumped to a conclusion that can not be derived from the assumptions of their model. Using the notation of M & B the essence of the theory of managerial discretion is captured by the following model. Mazimize the utility function