Industrial Structure and Monopoly Power in the Federal Bureaucracy: An Empirical Analysis

By Carroll, Kathleen A. | Economic Inquiry, October 1989 | Go to article overview
Save to active project

Industrial Structure and Monopoly Power in the Federal Bureaucracy: An Empirical Analysis

Carroll, Kathleen A., Economic Inquiry



In theories of public supply of services, bureau monopoly power plays a key role in determining output, budget, and cost levels. That bureaus have considerable monopoly power has generally been taken for granted. (1)

Margolis [1975] and Kaufman [1976], however, question the validity of this assumption. They suggest that bureaus compete, not only in the broad sense of the "invisible hand" as proposed by McKean [1965], but also in the narrower economic sense of supplying substitutable services. Borcherding [1988] comments on "...the need to establish the strength and effectiveness of competition within the public sector..." in order to determine the role of competition in public sector resource allocation.

To date there has been no direct empirical test of the assertion that individual bureaus have monopoly power. This paper presents such a test by first estimating the industrial structure of the federal sector, and by next examining the relationship between measured industrial structure and bureau monopoly power.

This investigation is limited to estimating federal industrial structure, as distinct from market structure. That is, the characteristics of bureau supply are examined, but demand characteristics are not. This approach is consistent with the focus of most existing theories that rely on the assumption of monopoly power. These theories model bureaucratic managerial behavior in supply, taking the legislative role to be primarily one of production monitoring. (2)


Most bureaus are considered as independent organizations analogous to the firm in the private sector. The concept of a public sector industry is also analogous to that of a private sector industry, that is, a collection of producing organizations that supply a similar service and then compete for funds. A private sector industry is considered to be highly structured if the distribution of market shares (or some other measure of size) of the firms in the industry is significantly uneven. (3) Two commonly accepted measures of the degree of industry structure in the private sector are the concentration ratio and the Herfindahl index.

Of the two measures, the concentration ratio is cited more frequently, primarily because it is readily available. The concentration ratio measures the combined market share of a given number (usually four or eight) of the largest firms in an industry. Because it is a partial and aggregate measure of industry structure, the concentration ratio provides limited information on the firms included in the ratio.

The Herfindahl index measures the dispersion of firm size within an industry by summing squared market shares of each firm. It is generally considered a better indicator of overall industry structure and competitive level within an industry than the concentration ratio because it usually incorporates information on market shares of all firms in an industry rather than overall concentration of a few large firms. The more limited use of the Herfindahl index may be attributed to its extensive data requirements.

Each of these measures is used to estimate industrial structure of the federal sector. To determine public sector industry structure, budget and expenditure data on federal funds (general and special funds) were obtained from the Budget of the United States Government, Appendix at the agency level for all bureaus active in either of two fiscal years, FY 1985 and FY 1980. (4,5) Data on nearly 300 federal organizations have been examined for each fiscal year. FY 1985 is the most recent fiscal year for which actual rather than estimated data are available. FY 1980 was chosen because a five-year interval should be reasonable for comparative purposes, and is consistent with the practice for similar calculations made for the private sector.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Industrial Structure and Monopoly Power in the Federal Bureaucracy: An Empirical Analysis


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?