Risk Culture in Public and Private Organizations

Abstract

Compared to private managers, are public managers more afraid to take risks' If so, why? These questions have permeated much of the recent discussion of bureaucratic reform, especially the work of the National Performance Review (Gore, 1993). The familiar view is that public sector managers are risk averse, that the risk aversion results in managerial ineffectiveness and that incentives should be provided to embolden public managers. Interestingly, while most government reformers take the risk aversion of public managers as both axiomatic and as a malady that must be addressed, the gurus of reinvention, Gaebler and Osborne, are not convinced of the connection between risk-taking and effective public management. Osborne and Gaebler (1993: p. xx) argue that the need to be more entrepreneurial should not be interpreted as taking risks: Many people also assume that entrepreneurs are risk-takers. They shy away from the notion of entrepreneurial government because, after all, who wants bureaucrats taking risks with their hard earned tax dollars' But, as careful studies demonstrate, entrepreneurs do not seek risks, they seek opportunities. Other studies of reform accept that risk-taking is a part of public entrepreneurship but argue that this can be tempered. For example, Bellone and Goerl (1992) suggest that public entrepreneurial behavior should be accompanied by a civic-regarding ethic that encourages citizen participation. But the pervasive,view is thai risk aversion is a problem and that it impedes entrepreneurial behavior. Not only are the supposed deleterious effects of risk aversion not proved, the empirical claim that public sector managers are more risk averse than private managers has not been conclusively determined. Empirical research on risk-taking has grown markedly in the past two decades or so (e.g. Jackson and Dutton, 1988; MacCrimmon and Wehrung, 1985, 1990; Osborne and Jackson, 1988; Singh, 1986; Sitkin and Weingart, 1995), but none of the best known empirical studies differentiate systematically between public and private organizations. Research on risk-taking by private sector managers defines risk as the exposure to the chance of loss from one's actions or decisions (Fischhoff, Watson and Hope, 1984; Hanson, 1989; MacCrimmon and Wehrung, 1986; Yates and Stone, 1992). Several components of risk-related behaviors have been empirically investigated by psychologists and managers concerned with business organizations. Some of these topics include risk perception and propensity (Sitkin and Weingart, 1995; Bettman, 1973), risk and decision-making (Figenbaum and Thomas, 1988; Janis, 1977; Libby and Fishburn, 1977), and personal characteristics of risk-takers (McClelland, 1961; Jackson and Dutton, 1988; Vlek and Stallen, 1980; MacCrimmon and Wehrung, 1990). Yet if our knowledge of risk-taking and risk perceptions has grown dramatically, our insights into the supposed risk aversion of public organizations and their managers is more an article of faith than a subject of research. This is not to say, of course, that there are no good theoretical reasons to expect public managers to be more risk averse. In the first place, economists have long argued that the nature of proprietary property rights (and the public sector's lack of them) provides incentives for private sector risk-taking not present in the public sector. Second, the life in a fishbowl characteristics of high level public sector jobs means that risk-taking behavior of public managers may be subject to greater scrutiny. Third, public organizations have been demonstrated, in a number of diverse empirical studies (e.g. Rainey, Pandey and Bozeman, 1995; Bozeman, Reed and Scott, 1989; Pandey and Bretschneider, 1997; Pandey, 1995; Buchanan, 197 1; Crow and Emmert, 1990) to have higher degrees of formalism and red tape and one might well expect this environment to undermine risk-taking. …