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Organizational History and Budgetary Punctuation

Scott E. Robinson Carla Flink Chad King

DRAFT: Please do not quote without permission.

November 5, 2012

Bush School of Government and Public Service, Texas A&M University Department of Political Science, Texas A&M University Department of Political Science, Texas A&M University Commerce

Abstract The basic dynamics of punctuated policy change have been found to be present in a wide variety of political institutions from a range of countries. The presence even commonality of punctuated change has been clearly and persuasively demonstrated. A key challenge in the literature is now to identify the conditions and institutional arrangements that make punctuated change more likely. This article investigates the role of organizational history in punctuated budgetary change. An error correction model of punctuation suggested by the institutional friction frameworks contends that budgetary punctuation results from built up need for budgetary change that had been prevented by slow-moving institutions. The need builds up until the institutions give way in the form of a budgetary punctuation. This explanation suggests that the probability of a punctuation in a given year is negatively related to having experienced such a punctuation in previous years. An alternative model which we will call the institutionalist model contends that the propensity for budgetary punctuation is endemic to specic organizations. These organizations possess inherent characteristics that predispose them to punctuated change. The institutionalist model suggests that the probability of a punctuation occurring in a given year is positively related to having experienced such a punctuation in previous years. The paper uses data from Texas public school districts over a 14 year period to test these competing models of policy punctuation. The results indicate that recent punctuated changes raise the probability of additional punctuated changes supporting the institutional hypothesis.

Introduction

Policy change is, paradoxically, both slow and rapid. Over long periods of time, it is not uncommon to see very little change in policy regimes. However, it is also possible to see rapid changes in policy change possibly brought on by triggering events (Birkland 1997). The policy process literature spent decades debating whether rapid (responsive) change or slow (incremental) process models are superior. Punctuated equilibrium theory (PET) borrowed, in part, from the eld of paleontology addressed the fundamental debate and embraced both responsive and incremental models of policy 2

change within a single vision of policy change (Baumgartner & Jones 2009). In this model, policy change is typically slow but (occasionally and rarely) characterized by rapid changes. The result is an integrated model of policy change that emphasizes the distribution of policy change over time rather than propositions about what levels of change will (or will not) be seen. The shift in focus to the distribution of policy changes over time raises new research question. Our core research question is, what factors change the distribution of policy changes observed? We return to the roots of punctuated equilibrium articles to consider the role of history in the distribution of policy changes. Specically, this article assesses whether a history of nonincremental changes reduces (or increases) the probability of observing a non-incremental policy change in the next time period. After introducing two, competing hypotheses relating history to policy change, we test the hypotheses using data from Texas school district budgets over more than a decade. We conclude with a discussion of what the results suggest for the punctuated equilibrium theory of policy change.

Punctuated Equilibrium Theory

PET has proven to be a fruitful approach to studying the policy process particularly within the area of budgetary politics. Emerging from research into policy agenda setting processes, Baumgartner and Jones noted that shifts in attention created positive feedback processes precipitating rapid changes in policy (Baumgartner & Jones 2009). When policy subsystems are not subject to a great deal of attention, policy develops slowly or incrementally. When attention turns to a policy subsystem possibly through a triggering event policy may change rapidly. The distributional expectations of punctuated equilibrium have proven remarkably robust. Initial research revealed how congressional policymaking exhibited leptokurtosis (True, Jones & Baumgartner 1999). Further work illustrated how these distributional processes varied from modest leptokurtosis (for media data) through strong leptokurtosis (in budgetary outlays) (Jones, Sulkin & Larsen 2003). Further research found similar leptokurtosis in policy processes at other levels of government (states, local governments, school districts) as well as other countries (Breunig & Koski 2006, Robinson 2004). In the end, leptokurtosis seemed to be a property of just about every policy change process studied. The diversity of contexts in which leptokurtosis char3

acterized policy change were so striking that this distributional property is a general, empirical law. (Jones, Baumgartner, Breunig, Wlezien, Soroka, Foucault, Franois, Green-Pedersen, Koski, John et al. 2009) c

2.1

Mechanisms of Punctuated Equilibrium Theory

Jones and Baumgartner proposed two (related) mechanisms to explain the universality of leptokurtic policy change processes: 1. Disproportionate information processing; and 2. Institutional friction 2.1.1 Disproportionate information processing

Based on the origins of PET in the agenda setting literature, the rst popular explanation for leptokurtic policy outputs is the tendency for decision makers (and decision-making institutions) to respond disproportionately to new information (Jones 2001). In a proportionate information processing model, information is instantly built into decisions as it would be in a fully ecient market. In an ecient market, one assumes that all information relevant to pricing is built into the price of a product and that changes in value are a random walk (with a mean of zero and normally distributed dierences). If the policy system operated with such eciency, one would expect policy changes to also be distributed normally. The leptokurtic distribution of policy outputs indicates that this is not the case. The gap between the expectation of an ecient market and the leptokurtic distributions observed in practice suggests the information processing is not proportionate. Workman, Jones and Jochim argued that policy decisions were predictably disproportionate in that policy systems tend to under-react to small changes (ignoring them entirely due to a lack of policy attention) and over-react to large changes (when attention turns to a previously neglected policy subsystem) (2009). This pattern of disproportionate information processing suggests that there should be a larger than expected number of occurrences of small changes and large changes with fewer than expected occurrences of moderate change. This expectation matches the leptokurtic distribution observed in so many policy change processes.

2.1.2

Institutional friction

While the traditional focus on agenda setting suggested an information processing basis for leptokurtic policy change distributions, another explanation is built on models of organization theory and formal decision-making processes. This second, popular, explanation is institutional friction (Jones, Sulkin & Larsen 2003). This approach focuses on the role of institutional rules in slowing down decisions. Bureaucratic and formalized decision processes involve the presence (even proliferation) of veto points and other forms of decision clearance. These processes throw up barriers to rapid or comprehensive policy responses. This mechanism suggests that the degree of leptokurtosis will vary depending on the characteristics of the policy making systems. In systems with numerous veto points or other barriers to policy change, we should expect larger kurtosis values in the distribution of policy change. Such an expectation creates a series of hypotheses linking institutional structure to the distribution of policy change.

2.2

Punctuated Change and Organizational Structure

Descriptive research persuasively demonstrated that the punctuated equilibrium theory generates valid expectations about the distribution of policy changes in a wide variety of institutional environments. This descriptive research closed out the rst phase of punctuated equilibrium research but left a number of intriguing questions. While leptokurtosis was seemingly universal, it varied in degree. The need to develop better mechanisms to explain policy change in PET has motivated recent research into institutional and organization characteristics that explain the varying degrees of leptokurtosis. The early strategy for inferences within the PET tradition were comparisons of kurtosis or the comparative ts of distributions to power law distributions. Jones et al. demonstrated that the distribution of policy outputs (within the US national policy making system) varied as one moved from early in the policy process (media and event data) to the end of the process (budgetary outlays) (Jones, Sulkin & Larsen 2003). Similarly, comparative kurtosis facilitated the comparison of policy outputs in dierent eras of congressional organization or in local school districts with varying levels of bureaucratization (Robinson 2004). Comparison of kurtosis and the t of distributions to power laws has 5

an inherent limitation. If comparisons are made of the properties of entire distributions, any hypothesis test requires an extraordinary amount of data. The Jones et al. comparison of stages of the policy process required the combination of many dierent data sets (Jones, Sulkin & Larsen 2003) while the comparisons of congressional eras (Robinson & Caver 2006), and local school district budgeting required dichotomization of the independent variable (Robinson 2004). The alternative to the comparison of entire distributions is to classify individual changes as representing small (incremental), medium, or large (punctuation) changes. Robinson et al. developed a non-arbitrary method for assigning individual policy outputs into these categories using the relative frequency of the change compared to a normal distribution (Robinson, Caver, Meier & OToole Jr 2007). The result was a comparison of thousands of budgetary changes rather than two distributions. This approach opened up the possibility of hypothesis testing within a regression framework to accommodate multivariate analysis. In their study of local school districts, organizational size and bureaucratization were signicant predictors of change categories controlling for growth in the district.

Two Models of Punctuation and Organizational History

Given the prominence of paleontological theories of punctuated equilibrium, it is surprising that history has not played a larger role in the development of PET. Most models of punctuated policy change do not include a term to account for the history of a policy process. The move to study individual data points, rather than distributions, allows one to investigate how the history of a policy process aects the probability of observing a large policy change. Understanding the history of the process may be an important complement to the previous focus on process and organizational characteristics. In considering the role of history in punctuation processes, we will focus on two contrasting models of punctuated policy change: 1. The error accumulation model, and 2. The institutional model

3.1

An Error-accumulation Model of Punctuated Policy Change

An error-accumulation model of punctuated policy change begins with a presumption that a policy process does not always keep up with environmental demand for change. For the sake of simplicity, imagine a policy process that generates policy at some level x. The level of policy demand is x which is typically not observable. When x = x , the system is in equilibrium and there will be no demand for a change in x. The dierence between x and x represents the pressure for policy change in the system . The error-accumulation narrative presumes that may increase without a policy response possibly due to limits of attention or institutional friction that must be overcome to experience any policy change. Only when exceeds some critical threshold ( ) will the policy system generate a new x closer or equal to x . If is large, the result of this adjustment process would be a series of punctuated changes separated in time. It would take time to build up . Figure 1 illustrates how such a process might develop. Figure 4 illustrates that the time series of x changes very little in most years until is substantial enough to force a large change.1 In such a process, punctuated policy changes are indications that the system has addressed the pressure in the system by reducing the dierence between x and x . A punctuated policy change, then, should be followed by a period where further large changes are unlikely. This expectation is the basis for the rst hypothesis of the article. Hypothesis 1 : The probability of experiencing punctuated policy change is negatively related to having experienced such change in the recent past.

3.2

An Institutional Model of Punctuated Policy Change

An alternative narrative argues that punctuated policy change are the product of institutions with characteristics that predispose them to punctuated change possibly in alternating directions of policy change (e.g. dramatically increasing and then decreasing enforcement). Such a model emphasizes the randomness of policy change and suggests that punctuated changes are
Figure 4assumes a smooth correction process that does not involve organizations overshooting the equilibrium point an issue we will return to in the conclusion.
1

6 4 x 2 0 0

x x

2 t

Figure 1: An error correction model of punctuated policy change endemic to specic institutions possibly because of mismanagement or poor organizational design rather than a natural part of all organizations. The pattern of budgetary change will be haphazard and prone to large changes in clusters as the organization gropes for an equilibrium budget. Such a narrative implies that poorly managed or institutionally underdeveloped organizations will experience a higher number of large changes changes that do little to address the actual demand for change. Such an institutional model could result in a history like that reected in Figure 2. With such a model of policy change, organizations that are prone to punctuations are qualitatively dierent than those that are not. Organizations that are of this type (indicated by a history of punctuations) are more likely to experience future punctuations than those that have not had such a history. Such an alternative model of punctuated policy change generates the following hypotheses: Hypothesis 2 : The probability of experiencing punctuated policy change is positively related to having experienced such change in the recent past.

8 6 x 4 2 0 0

x x

2 t

Figure 2: An institutional model of punctuated policy change

Data

Testing these hypotheses requires data with a specic set of characteristics. Primarily, the tests will require data that categorizes individual policy outputs as incremental or not rather than comparing entire distributions. For this we will use instructional spending per pupil by Texas school districts (Robinson 2004, Robinson et al. 2007).

4.1

Sample

The use of school district budgeting data provides a number of important advantages for the study of punctuated policy change and organizational characteristics. Most importantly, the use of school district data allows for the comparison of policy processes that are similar in important ways. Each school district uses similar technology and serves a similar social purpose. Focusing specically on school districts in the state of Texas provides uniformity on measurement of budgets (identical accounting standards), uniform regulations, and similarity in political context. The result is a data set with policy change data (investment in instructional spending by districts) across over a thousand similar organizations tracked as a panel across time.

4.2

Measurement

The diculty in moving to a regression approach for studying the factors related to punctuated policy change is the measurement of punctuated policy change. The literature on incrementalism was hampered for years by disputes over what threshold counted as non-incremental. The key is in identifying a non-arbitrary method for categorization. To this end, we have adopted the approach used by Robinson et al. (2007). We overlaid a histogram of the empirical distribution of the policy changes (here percentage change in instructional spending per pupil) with a normal distribution based on the empirical mean and variance. As expected, there were four points where the two distributions crossed. There are two points near the mean change enclosing what we call incremental changes. There are two regions where the empirical distribution has lower frequencies than expected from a normal distribution. We classify observations in this range as moderate changes. There are, nally, two regions where the empirical distribution again crosses over the normal distribution overlay. Points beyond this cross over (to negative or positive innity) are large changes. For the purposes of this study, our interests are in these large (punctuated) budgetary changes. We use the same cut-points for large, punctuated changes as in Robinson et al. (2007). The second key variable is whether an organization has experienced a punctuated policy change in the recent past. Recency presents its own challenges for measurement. The theoretical discussion of punctuated equilibrium does not provide a non-arbitrary method for dening recency as it does for small, medium, and large changes. We have adopted ve years as a convenient starting point for analysis. This represents half of the range that Sabatier recommends for studies of policy changes over time (1993). Furthermore, this provides a nice balance of length of a historical time span and the loss of data that occurs with every lagged year. We have measured whether an organization has experienced at least one punctuation in the past ve years as our measure of history. This dichotomous measure allows us to test the hypotheses presented in the previous section. Finally, we need a series of controls to account for alternative explanations of punctuated policy change. We have replicated the control variables from the previous study of budgetary change in Texas school districts (enrollment growth, bureaucratization, and organizational size) (Robinson & Caver 2006). Enrollment growth is measured as a percentage increase in student enrollment. Bureaucratization is measured as the percentage of a 10

districts budget allocated to central bureaucracy. Organizational size is the logged number of students in each school district. Finally, we have included xed eects for years. Including these controls assures that any results are not confounded by previously known inuences as well as serving to replicate the previous study. Table 1: Descriptive Statistics Mean Standard Deviation Minimum .015 .120 0 .065 .247 0

Variable Punctuation Recent Punctuation Size (logged) Centralization

Maximum 1 1

6.94

1.52

2.07

12.3

7.39

3.71

73.3

Enrollment Growth

.783

7.29

-63.3

121

It is interesting to note that if the 2.6% rate of punctuation were randomly distributed among the sample districts, the percentage of districts who experience a punctuation in the previous ve years should be 15%. In fact, only half that number have a recent punctuation. This is initial suggestive evidence for a clustering of punctuations.

Estimation Strategy

With these variables, we have a simple estimation strategy. The dependent variable is whether an organization experiences punctuated policy change (). We test whether this probability is aected by whether that organization has experienced punctuated change in the past ve years () controlling for previously identied factors and year xed eects(). The result is the following regression equation: P () = + + 11 (1)

We rst estimate this regression equation using a logistic regression model. The logistic regression model may be suspect to biases when dealing with rare events (King & Zeng 2001). In our case, punctuations are present in only 2.63% of cases. The bias is estimated as: E(0 0 ) 0.5 n (1 ) (2)

There are no hard rules as to when rare events corrections are necessary for logistic models. The low base probability indicates such corrections may be appropriate. However, the bias decreases in the number of observations. With a large dataset like ours, the bias is likely to be small. We test the hypotheses with both the basic logistic and the rare events corrected logistic models.

Results

Table 2 presents the results of the regression models. The rst model uses the basic logistic regression model. If an organization has experienced a punctuated change in the past ve years, the expected probability of experiencing a punctuated change signicantly increases. The second model nds a parallel pattern when correcting for the potential bias of rare event dependent variables. In the basic logistic regression, the model is signicant as a whole based on the Wald test. The pseudo-R2 value of .2108 is also strong though the exact interpretation of the values is dicult and little is known about the properties of pseudo-R2 values for rare event models. The matching statistics are not available for rare events logit but, given the close correspondence of the results, we are condent the model t is also similar. With a rare event model, traditional measures of t (like proportionate reduction of error) are problematic when the baseline prediction is 98% non-punctuation. The Wald test, though, is robust to these conditions. The regression coecients are dicult to interpret directly. To assist in understanding the substantive signicance of recent punctuated changes, we simulated the probability of experiencing punctuated policy change with all variables held at their means except for the history variable 2 . The results
Simulations were conducted in STATA with the Clarify software package (King, Tomz & Wittenberg 2000).
2

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Variable Recent Punctuation Size (logged) Centralization

Table 2: Regression Results Model 1 Logit Model 2 Rare Events Logit 1.61*** (8.97) -.576*** (-7.77) .054*** (4.22) -.008 (-1.35) -1.76** (-3.00) 1.60*** (8.34) -.572*** (-7.16) .055*** (4.12) -.007 (-.96) -1.73** (-2.78)

Enrollment Growth Constant

N 12752 12752 2 Wald Test (dof=15) 411.22 N/A 2 Pseudo R .2108 N/A (All models include xed eects for years) (Z-statistics in parentheses) ( = p < 0.05, = p < 0.01, = p < 0.001)

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Figure 3: The Eect of a Recent Punctuated Change on the Expected Probability of a Punctuated Change for Model 1 are presented in Figure 3. Here you can see the separation of the expected probability with those organization which experienced recent punctuated change being about 2.5% likely to experience punctuated change, while those without recent punctuated change are only about .5% likely to experience punctuated change. The separation of the two modes of the probabilities indicate statistical signicance (already reected in the z-scores on the table) while the dierence between the two modes represent a 500% increase in the probability to experience a punctuated change for the organization with recent punctuated change.

Discussion

These ndings provide reason to question the received model of punctuated policy change. The presumption that punctuated policy change is typically followed by a period of relative stability does not nd support here. Instead, we see clusters of punctuated change where recent experience with punctuated policy change increases the expected probability of further punctuated policy change. This raises a series of questions that warrant further investigation. This study illustrates the continuing measurement challenges present for research into punctuated policy change. The models focus on punctuated 14

policy change. Future work could focus on only large changes or distinguish between medium and large changes. This requires a process for categorizing policy changes into incremental and punctuated changes. The current approach still includes elements of imprecision with cut points depending, in part, on the binning of a histogram and the researcher-assessed crossover points. An analytic solution, if one were to emerge, would provide a stronger basis for the categorization. This imprecision is less of a problem when merely splitting between punctuated and non-punctuated change (as we did here) than it would be with distinctions between ve levels of change (as in the Robinson et al. paper (2007). However, the issue warrants further investigation. The ndings supporting the institutional model of punctuated policy change lead to a number of potential interpretations. One possibility is that the institutions are predisposed to puncutated change are structurally dierent than those that experience greater stability. This raises questions as to the specic structural characteristics of these punctuated organizations (especially since the models control for size and centralization). Two potential hypotheses seem most promising. One clarifying hypothesis is the burden of newness. In such an explanation, new organizations are more likely to be unstable and thus may be more prone to the clustered punctuated changes we observe here. The implications of such a process would be that new organizations are destined to experience punctuated policy change but this is a predisposition that they may grow out of (if they survive). Analogously, one might expect a burden of newness in new policy areas emerging from old institutions. A second potential hypothesis is that the clustering of punctuated changes is in fact a slowly correcting error accumulation process. If correction takes multiple time periods (in these data, years), a single punctuation followed by a period of stability would appear as a cluster of punctuated changes. It is not clear, though, whether a slow punctuation is a punctuation at all. If punctuated change occurs gradually, it begins to resemble the sorts of adjustment processes rejected by incremental and punctuated equilibrium theorists alike. However, the problem may be one of temporal aggregation. This article (as with most similar studies) takes the time-period of analysis to be a single year. If this is an articially small level of aggregation, a real punctuation that takes two years will look like a cluster of changes. Further work should investigate the implications of the choice of temporal level of aggregation. 15

8 6 4 2 0 0 x

x x

4 t

Figure 4: An slow-correction model of punctuated policy change As a result, we see many avenues for future research. In addition to alternative measures of punctuated policy change, future work could investigate whether the direction of change matters. We have pooled negative and positive policy changes but there could be dierent dynamics for growth than for retraction. One hypothesis might be a sequence of positive punctuation followed by slow to medium retraction as in Kettls model of punctuated backsliding (Kettl 2006). Careful theorizing about dierences in direction of change could open a variety of avenues for future research. In conclusion, hypothesis testing within the punctuated equilibrium theory is still within its infancy. Signicant questions remain about issues of measurement and theory development. Despite these questions, however, there is reason to believe that work in predicting organizations and processes predisposed to punctuated policy change will be productive.

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Workman, S., B.D. Jones & A.E. Jochim. 2009. Information processing and policy dynamics. Policy Studies Journal 37(1):7592.

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