"Strategic misrepresentation is the planned, systematic distortion or misstatement of fact—lying

Lie

For other uses, see Lie A lie is a type of deception in the form of an untruthful statement, especially with the intention to deceive others....

—in response to incentives in the budget

Budget

A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...

 process. Examples of strategic misrepresentation in budgeting illustrate that it is a contingent strategy responsive to a system of rewards in a highly competitive game where resource constraints are present." -- (Jones and Euske, 1991)

Mechanics

"Not all budget advocacy requires or involves misrepresentation, nor is all budgetary strategy intended to misrepresent. Strategic misrepresentation is a predictable response to the incentive structure of the budgetary game (see also principal–agent problem); it is used because it works under some circumstances. It is used both by budget advocates and controllers and at times by both sides of the left-right political spectrum." -- (Jones and Euske, 1991)

Economic Research

Jones and Euske (1991) identified "thirteen budget-process factors that appear to stimulate strategic misrepresentation in budgeting and provide examples to demonstrate under which conditions the budget-process factors result in strategic misrepresentation. The study concludes that no amount of moral handwringing over the evils of strategic misrepresentation is likely to lessen the practice. Rather, the system of incentives that propels strategic misrepresentation requires analysis and reform if the behavior is to be discouraged." (Jones and Euske, 1991)

Flyvbjerg (2002) found that strategic misrepresentation explains widespread cost overrun

Cost overrun

A cost overrun, also known as a cost increase or budget overrun, is an unexpected cost incurred in excess of a budgeted amount due to an under-estimation of the actual cost during budgeting...

 in public works projects. Flyvbjerg (2008) described how strategic misrepresentation may be reduced by improved incentive alignment and reference class forecasting

Reference class forecasting

Reference class forecasting is the method of predicting the future, through looking at similar past situations and their outcomes.Reference class forcasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast. The theories...

.

See also

• Budget crisis
  Budget crisis
  A budget crisis is an informal name for a situation in which the legislative and the executive in a presidential system deadlock and are unable to pass a budget. In presidential systems, the legislature has the power to pass a budget, but the executive often has a veto in which there are...
  
  
• Budget surplus
• Budget theory
  Budget theory
  Budget theory is the academic study of political and social motivations behind government and civil society budgeting. Classic theorists in Public Budgeting include Henry Adams, William F. Willoughby, V. O. Key, Jr., and, more recently, Aaron Wildavsky. Notable recent theorists include Baumgartner...
  
  
• Cost-benefit analysis
  Cost-benefit analysis
  Cost–benefit analysis , sometimes called benefit–cost analysis , is a systematic process for calculating and comparing benefits and costs of a project for two purposes: to determine if it is a sound investment , to see how it compares with alternate projects...
  
  
• Cost overrun
  Cost overrun
  A cost overrun, also known as a cost increase or budget overrun, is an unexpected cost incurred in excess of a budgeted amount due to an under-estimation of the actual cost during budgeting...
  
  

• Cost underestimation
• Benefit shortfall
  Benefit shortfall
  A benefit shortfall results from the actual benefits of a venture being lower than the projected, or estimated, benefits of that venture. If, for instance, a company is launching a new product or service and projected sales are 40 million dollars per year, whereas actual annual sales turn out to be...
  
  
• Optimism bias
  Optimism bias
  Optimism bias is the demonstrated systematic tendency for people to be overly optimistic about the outcome of planned actions. This includes over-estimating the likelihood of positive events and under-estimating the likelihood of negative events. Along with the illusion of control and illusory...
  
  
• Reference class forecasting
  Reference class forecasting
  Reference class forecasting is the method of predicting the future, through looking at similar past situations and their outcomes.Reference class forcasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast. The theories...
  
  
• Rent seeking
  Rent seeking
  In economics, rent-seeking is an attempt to derive economic rent by manipulating the social or political environment in which economic activities occur, rather than by adding value...
  
  
• Peter Principle
  Peter Principle
  The Peter Principle states that "in a hierarchy every employee tends to rise to his level of incompetence", meaning that employees tend to be promoted until they reach a position at which they cannot work competently. It was formulated by Dr. Laurence J...
  
  

Sources

• Flyvbjerg, Bent, Mette K. Skamris Holm, and Søren L. Buhl, 2002, "Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, pp. 279-295.
• Jones, L.R. and K.J. Euske, 1991, "Strategic Misrepresentation in Budgeting," Journal of Public Administration Research and Theory, vol. 1, no. 4, pp. 437-460.