Rethinking Punctuated Equilibrium Theory: A Public Administration Approach to Budgetary Changes

Rethinking Punctuated Equilibrium Theory: A Public

Administration Approach to Budgetary Changes

Carla M. Flink

What stimulates policy change in organizations? Punctuated equilibrium theory (PET) posits that

over time policy moves slowly, but also experiences large, rapid changes. Explanations for

punctuations have centered on institutional friction and disproportionate information processing.

Lacking in PET literature is a theoretical understanding of policy change aside from structural and

cognitive limitations. Other organizational features can create friction to slow or accelerate the policy

process. This study utilizes both public policy and public administration theory by applying a public

administration approach to studying budgetary change. Leveraging this approach, this work analyzes

the pattern and explanations of budgetary changes. Centering on two concepts understudied in PET

literature—policy feedback and endogenous organizational change—data from hundreds of

organizations are used to demonstrate how organization performance and personnel instability

contribute to budgetary changes for core organization activity. Results indicate that high levels of

performance and low levels of personnel instability lead to incremental changes.

KEY WORDS: punctuated equilibrium theory, public policy process, public administration, public budgeting, organization performance, turnover

1. Introduction

The ability for organizations to hold steady policies while being able to adapt to

changing needs takes a delicate balance. The policy process, as such, is both rapid

and slow. As one theory of the policy process, punctuated equilibrium theory (PET)

captures both of these dynamics by examining incremental and large, punctuated

changes. Scholars in this literature have had much success in finding the pattern of

change predicted by PET in a variety of policy settings.

Understanding the factors that contribute to the rate of policy change has been

one of the core objectives in this literature. In broad terms, scholars have identified

disproportionate information processing, institutional friction, and organizational

history as reasons why policy subsystems experience more or less punctuated

changes. Empirically, PET has been predominantly analyzed through examinations

of distributions of policy changes, although there have been works that utilize multi-

variate analyses (Robinson, Flink, & King, 2014; Robinson, Caver, Meier, & O’Toole,

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2007). Traditionally, these studies use public budgeting data—federal, state, local,

and school district levels.

Throughout PET literature, much effort has been devoted to explaining how the

structure of institutions and organizations shapes policy outcomes. Features such as

centralization, veto players, organization size, and bicameralism have all been shown

to affect the rate of policy change by applying varying amounts of “friction” to the

policymaking process. Moving away from structural considerations, other factors

can slow or accelerate the policy process, although little scholarly work has been

devoted to explaining these other features that influence the rate of policy change.

Why do two organizations of the same structure experience different policy changes

over time? Part of the answer lies in looking to other literatures that can explain fac-

tors that influence organizational decision making.

The purpose and main theoretical contribution of this article is to extend explan-

ations of budgetary change in PET by applying theories from public administra-

tion—a literature devoted to explaining how bureaucrats, clientele, management,

and the environment influence performance and efficiency in organizations. Public

administration literature brings a new perspective on what causes friction in organi-

zations, and what leads to policy changes. In turn, this study makes theoretical con-

tributions to both public policy and public administration literatures by not only

examining the pattern of budgetary changes but also developing explanations for those

changes.

Two concepts understudied in PET literature—policy feedback and endogenous

organization change—are examined in this study. Policy feedback is measured by

organization performance. It indicates how well a policy is working for an organiza-

tion, hence, providing policy feedback. Endogenous organization change is how

alterations within the organization, not strictly related to policy changes, affect policy

dynamics. In this work, endogenous organization change is measured as personnel

instability (also referred to as employee turnover). Success of policies and internal

organization changes are concerns for all organizations. Understanding how both

concepts influence budgetary changes has benefits for academics and practitioners

as the public sector works within an increasingly strained resource environment.

Justification for applying public administration theories is grounded in two cri-

tiques of the conceptualization of institutional friction. For one, friction is conceptual-

ized as factors of the policy process or structure of decision making. There are

organizational features outside of the traditional idea of “structure” that can influ-

ence budgetary changes. Second, the structures of policymaking, studied as institu-

tional friction, stay relatively steady over time (Jones & Baumgartner, 2005). Policy

decisions, though, are not based solely on how institutional and organizational struc-

ture influences decision costs, but on the current environmental demands. Organiza-

tions and institutions—regardless of their design—make decisions based on these

current demands that are in constant fluctuation.

This article theorizes and tests policy feedback and endogenous organization

change as catalysts for budgetary change by using a dataset that contains budgetary,

personnel, and performance data for hundreds of school districts in Texas for an

almost 20-year period. Organizational performance and personnel instability are

102 Policy Studies Journal, 45:1

examined to assess how each influences changes in core program funding. The find-

ings demonstrate that as performance increases, there is a significant rise in the pro-

portion of incremental budgetary changes. For personnel instability, as turnover

decreases, incremental budgetary changes become more prevalent. These results are

significant while controlling for varieties of institutional friction.

In addition to theoretical advances, results also provoke discussion about two

conventional measurement choices in the literature. For one, many scholars combine

punctuated and medium size budgetary changes into one “nonincremental” cate-

gory. The findings in this study show that medium size changes fluctuate depending

on the degree of friction, while punctuated changes show little movement away

from near zero probability of occurring. More examination should be given to

medium size changes, given their frequency over punctuated changes.

Second, scholars typically combine positive and negative changes of the same

absolute size in their measurement of budgetary changes. Findings in this study indi-

cate that positive and negative changes, even of the same absolute size, are utilized

at different times over the ranges of friction. This suggests researchers should work

toward theorizing and measuring budgetary changes based on the direction of

change.

In all, this study causes us to rethink PET in terms of the theoretical causes of

policy change, how changes are measured, and the empirical methods applied to

test PET. This study ends with suggestions for future scholarship in PET and public

administration.

2. Literature

2.1. Models of Policy Change

Incrementalism is part of the foundation of policy change studies. This is espe-

cially true in the field of public budgeting. The field has dedicated decades to

explaining how incrementalism applies—or does not apply—to public budgeting

(Davis, Dempster, & Wildavsky, 1966; Wanat, 1974; Wildavsky, 1964). In analysis of

budgets from every level of government, country, agency, or organization, the same

general incremental pattern is present: there are mostly small changes from year to

year, supporting incrementalism (Cornia & Usher, 1981; Davis, Dempster, & Wildav-

sky, 1974). Incrementalism, though, is not readily accepted by all budgeting scholars.

For one, the term “incrementalism” has become conceptually diffuse. Scholars have

used the term to describe a method of problem solving, a process of interaction, a

theory of organizational behavior, a theory of policy development, a shift in organi-

zational relationships, and the size of monetary change (Berry, 1990; Dempster &

Wildavsky, 1979). With this many meanings, some scholars have questioned if incre-

mentalism is still a useful term for scholarly works (Berry, 1990). However, despite

critiques noting the theoretical and empirical shortcomings of incrementalism (i.e.,

Bailey & O’Connor [1975]; Berry [1990]; Dempster & Wildavsky [1979]; Natchez &

Bupp [1973]; Tucker [1982]), the theory could not be wholly rejected or replaced with

all new theories. Hence, it still remains relevant to budgetary studies today.

Flink: Rethinking Punctuated Equilibrium Theory 103

PET, borrowed from geological studies, emerged as another theory of the policy

process that embraced incrementalism and incorporated the expectation for large

changes—a missing element of the incremental theory (Baumgartner & Jones, 2010).

In this theory, Baumgartner and Jones (2010) relate the policy process to phenomena

from the physical sciences like earthquakes and landslides. For example, earthquakes

occur as a result of slowly building pressure from underneath the earth’s surface

that causes violent shifts of the earth’s tectonic plates. The dramatic shift of the

earth’s plates causes earthquakes.

Keeping with the bigger picture, these are slow-moving processes that eventu-

ally lead to dramatic events. Policy processes work in much the same way. Policies

typically experience modest changes. Over time though, pressure builds within the

policy subsystem until enough pressure has accumulated that a large and dramatic

policy change results. In PET, these large changes are known as punctuations. Fea-

tures of the policy process can slow or accelerate the rate of policy change.

This theory has been supported in many contexts from incarceration rates

(Schneider, 2006) to election results (Baumgartner et al., 2009), legislative actions (i.e.,

bill introductions and hearings) (Baumgartner et al., 2009), environmental policy

(Busenberg, 2004; Repetto, 2006; Salka, 2004; Wood, 2006), and education (McLen-

don, 2003). The dominant testing ground, though, has been in the field of public

budgeting. Local, state, comparative, and U.S. federal government agencies and pub-

lic organizations have all exhibited characteristics consistent with PET (Baumgartner,

Foucault, & Francois, 2006; Baumgartner et al., 2009; Breunig, 2006; Breunig & Koski,

2006; John & Margetts, 2003; Jones, Baumgartner, & True, 1998; Jones et al., 2009; Jor-

dan, 2003; Mortensen, 2005; Robinson, 2004; Robinson et al., 2007).

Determining a series’ conformity with PET has relied on assessing the shape of

the distribution of annual percentage budgetary changes. The distribution is ana-

lyzed for how closely it follows a normal distribution. Specifically, the degree of kur-

tosis (a measure of central “peakedness”) is examined. Distributions that support

PET have high values of kurtosis and are known as leptokurtic distributions—distri-

butions with significantly more central observations around the mean and in the tails

of the distribution than a normal distribution. Theoretically, this is what PET predicts

of the policy change process: mostly incremental changes with numerous sizable

changes. This leptokurtic distribution, also known as a power function, is central to

punctuated equilibrium studies. It has proven extremely robust and is considered a

general empirical law (Jones et al., 2009).

Coupled with its theoretical growth, punctuated equilibrium literature is increas-

ing in empirical complexity. Scholars are expanding their work beyond univariate

analyses of distributions to multivariate hypothesis testing that can account for other

explanations of budgetary changes. The few published works that use multivariate

empirical tests predicting budgetary outcomes have divided the distribution of

budgetary changes into categories based on their size to use either logit (Robinson

et al., 2014) or multinomial logit (Robinson et al., 2007).

This is an important direction for the literature as it advances understanding of

how various features of governments and organizations influence budgetary

changes. Traditional univariate analyses in PET have focused on the shape of the

104 Policy Studies Journal, 45:1

distribution of budgetary changes and have limited their ability to account for other

variables. This has led to a literature that has probed deeper into describing a pattern

of budgetary changes, instead of engaging in theoretical development of what trig-

gers budgetary changes. By multivariate hypothesis testing methods, scholars can

progress to understanding the causes of different sizes of budgetary changes.

2.2. Causes of Punctuations

The literature on PET identifies two broad reasons for punctuations in policy

changes: disproportionate information processing and institutional friction.

Disproportionate information processing is an artifact of the direction of policy

attention. As the name suggests, this explanation of PET attributes policy changes to

the tendency of policymakers and policymaking institutions/organizations to react

disproportionately to new information (Jones, 2001). This is in contrast to proportion-

ate information processing (Jones & Baumgartner, 2005) in which policymakers form

policy decisions proportional to information within the environment. Officials,

though, cannot adequately process all information since there is only a limited

amount of policy attention they can give (Jones & Baumgartner, 2005). As a result,

policy subsystems commonly go through periods of underresponding or ignoring

information to overreacting to it (Jones & Baumgartner, 2005; Workman, Jones, &

Jochim, 2009). The over- and under-reactions contribute to the leptokurtic shape of

the distribution of budgetary changes found broadly in policy subsystems.

Institutional friction, the other explanation for policy punctuations, occurs as a

result of the institutional or organizational barriers or decision clearance points in

the policymaking process. Friction is a term used to account for the difficulty in the

process of making policy changes. The more hurdles there are in the process, the

more friction there is within the policy subsystem. This has consequences for policy

alterations. While institutional and organizational designs with multiple actors and

decision-clearances promote checks and balances (which provide comfort to citi-

zens), they slow down the policy process. This, in turn, builds pressure within the

policy subsystem. Over time, the accumulation of pressure will yield a punctuation.

There have been many different ways in which friction has been measured. The

measure is meant to describe the concentration of power or the barriers in deciding

policy changes. Institutional friction has been measured by bureaucratization (broken

down to centralization and organization size), stage in the policy cycle, political sys-

tem (presidential or parliamentary), executive dominance, single-party governments,

bicameralism, partisan control of government, partisan distance of governing parties,

and decentralization (Baumgartner et al., 2009; Breunig, 2006; Jones et al., 2009;

Robinson, 2004; Robinson et al., 2007). Empirically, each of these factors affects the

degree of kurtosis in the distribution of budgetary changes.

While the literature on PET establishes an overall pattern of change identified

through distributions, examining distributions of budgetary change does not allow

scholars to see when punctuations occur one time point to the next—the time series

aspect of budgetary change is lost when all years are combined to form a single

Flink: Rethinking Punctuated Equilibrium Theory 105

distribution. To examine when punctuations occur while preserving them in a time

series format, Robinson et al. (2014) test how the history of punctuations influence

the probability for future punctuations. The authors develop two theoretical models

of the effect of organizational history on punctuations. In the Error Accumulation

model, the probability of an organization experiencing a punctuation is negatively

related to having one in the recent past. In this model, punctuations occur to correct

the policy subsystem to the desired level of policy. Once this correction has been

made, policies will only see incremental changes until the distance between the

actual and desired level of policy reach a critical threshold.

The other model is the “Institutional Model” of policy change that states large

policy changes occur from characteristics within the organization (like poor design

or mismanagement). Since the propensity of punctuations is tied to the organiza-

tional design, the probability of having a punctuated change is positively related to

having one in the recent past. The authors’ findings support this Institutional

Model—punctuations occur in clusters. In other words, a history of punctuations

yields a higher probability that organizations will have a punctuation in the future.

3. Untested Sources of Friction

Literature has demonstrated that institutional friction influences budgetary

changes. There are, however, common characteristics of the measures of institutional

friction that leave open many questions about other sources of friction within policy

subsystems. For one, measures have been conceptualized as the policy process.1

Indeed, this was one of the original goals of this research agenda—examining the

policy consequences of structures of policy subsystems. Prior to PET, little was

known about how organizational or institutional structure shaped policy outcomes.

Early explanations centered on factors aside from the process. For example, the polit-

ical, economic, social, and administrative environments were said to influence policy

changes (Davis et al., 1974).

Punctuated equilibrium literature, however, has progressed in explaining the

process and structural factors as well as theorizing over cognitive limitations, leaving

other factors virtually unexplored. While PET is a theory of government information

processing (Workman et al., 2009), there are other elements to organizations that can

cause friction among decision makers and in turn, affect policy changes. Public

administration literature can help bring more depth to the understandings of policy

change and provide an avenue to study concepts heavily discussed, yet not thor-

oughly tested in PET literature.

Public administration literature aims to explain how bureaucracy, management,

clientele, and various public and private organizations all interact to affect and

implement public policy. It aims to explain how well governments deliver goods

and services in light of new policies, varying management strategies, racial diversity,

conflicting goals, coordinating programs among many organizations and institutions,

and numerous other considerations. This literature has helped identify factors that

contribute to healthy and unhealthy organizations—ideas that can transfer to PET by

explaining ways in which organizations experience friction other than through

106 Policy Studies Journal, 45:1

organizational/institutional processes. Public administration literature adds a new

dimension to the PET reasoning for budgetary change by incorporating indicators of

the organization environment, uncertainty, personnel, clientele, and task difficulty as

proxies for friction within a policy subsystem. This is the main theoretical contribu-

tion of this study—understanding how these organizational features that give sub-

stance to the interactions among decision makers influence the rate of budgetary

change.

Budgets, in short, are not simply artifacts of the policy processing structure of

organizations. This would give the impression that organizations are natural sys-

tems, with outcomes dependent on however the organization was originally

designed (leading to high or low friction). Organizations, however, are human sys-

tems—their outcomes are dependent on more than structural design. For example,

organizations of the same structure can experience different levels of budgetary

change as a result of varying amounts of friction brought about by environmental

demands or other issues surrounding the organization. Institutional friction captures

how efficiently policies are processed, but it does not give an idea to the problems

the organization is trying to address. An understanding needs to be gained about the

contextual elements that can show stress within organizations and signal a greater

need for budgetary change.

A second common feature of the institutional friction policy process measures is

their relative stability over time (Jones & Baumgartner, 2005). The fixed measures

allow for comparisons of the institutional/organizational arrangements over time—

an essential component to understanding the policy change process. However, many

aspects of organizations fluctuate over time. Instability and uncertainty within organ-

izations create friction that can jolt an organization. This lead to many theoretically

interesting questions related to how policy stability persists in light of factors that

change frequently within the organization.

These two points—structure and stability—have inhibited the study of many

organization features that can influence policy dynamics. This study addresses both

of the above critiques by examining two organizational features that are outside of

the decision-making structure and that fluctuate over time: policy feedback as organi-

zational performance and endogenous organizational change as personnel instability.

Policy feedback2 is conceptualized as the success or failure of a given policy deter-

mined by organizational performance. The feedback received by policymakers pro-

vides information on the type of adjustment—minor or major—that is needed for the

policy to be more effective for the organization. Obtaining reliable and timely feed-

back is a crucial element of policy development. Endogenous organizational change

examines how internal alterations within the organization can have broader implica-

tions for policy dynamics. The changing of personnel, managers, clients, operating

procedures, performance metrics, organization structure, and so forth, although all

internal organization issues, can have impacts on policy alterations.

Organization performance and personnel turnover are two important and salient

elements to virtually all organizations (Rainey, 2003) and are commonly studied

throughout public administration literature. They are constantly monitored and

taken into account for many organization decisions. If either of these features is less

Flink: Rethinking Punctuated Equilibrium Theory 107

than adequate, it can cause issues within the organization. Most likely, there will be

disagreement within the organization on the best way to improve the quality of out-

puts and employee retention. How each element can be a potential source of friction,

and in turn impact budgetary changes, is outlined below.

3.1. Policy Feedback: Organizational Performance

The performance of public organizations is scrutinized by citizens and public

officials. Even though they are generally characterized as underperforming (Moyni-

han, 2008; Rainey, 2003), the reason for the existence of public organizations is to pro-

vide quality goods and services to their clientele. Efforts to increase the efficiency

and effectiveness of public organizations have gained momentum. Elected officials

have developed extensive accountability systems to incentivize good and penalize

bad performance in public organizations. A weakness of these policies is their one-

size-fits-all approach. Numerous studies have demonstrated the unequal results of

these programs across organizations (Moynihan, 2008; Radin, 2006; Rainey, 2003;

Rutherford, 2014). Public organizations have unique missions, environments, and

multiple dimensions on which to measure performance—suggesting there is no one

way in which they can be motivated or evaluated.

Numerous performance initiatives implemented by government have made

attaining set standards a high-stakes endeavor. Performance is virtually the biggest

concern for any organization. Throughout academic work, this is reflected in man-

agement and organization theory’s central focus on explaining different aspects of

organization performance and effectiveness (Rainey, 2003). The literature assessing

the determinants of organizational performance is large and spans many diverse

fields. In practice, outputs are regularly monitored by public officials, managers,

employees, and service recipients. Based on what is observed, current and future tar-

get levels of performance shape organization work and direction. Over- and under-

performing organizations, however, must take different approaches to their work.

The general assumption is organizations achieve success through proper manage-

ment of their internal and external environment. When public organizations fall

below a set standard, governments must intervene to help manage the situation.

Organizations with sustained high performance have implemented successful

policies and properly managed their environment. Assuming no government inter-

ventions or other environmental shocks, changes to the organization are typically

modifications to existing routines. These organizations are more likely to benefit

from increased resources and support from government or the addition of new cli-

ents. Organizational goals then focus on maintaining current standards and possible

expansion of their work.

There are harsh consequences for underperforming public organizations. With

the push for greater accountability, these organizations are threatened by sanctions,

penalties, government interventions, and closure. Managers, employees, and clients

want to improve performance, but finding consensus on the best way to achieve that

end is difficult. The choice on what alterations to make within the organization is

108 Policy Studies Journal, 45:1

complicated by the many options available to decision makers. Resources, regula-

tion, markets, organization, and management all influence public service perform-

ance (Boyne, 2003). Isolating the parts of the organization that need to be changed

can cause conflict and friction. In light of this friction, policy changes are likely to be

large (a case can be made for either positive or negative punctuations, depending on

the situation), as a desperate attempt for performance improvement. Incremental

changes are not likely to provide the jolt needed within the organization to spark

performance increases.

This leads to the performance hypothesis:

Hypothesis 1: Low performance decreases the expected proportion of incremental

budgetary changes and increases the expected proportion of medium and punctu-

ated budgetary changes.

3.2. Endogenous Organizational Change: Personnel Instability

One of the core concerns of management is their organization’s workforce.

Human capital is one of the most valuable assets of any organization (O’Toole &

Meier, 2009; Rainey, 2003). Bringing in new talent, retaining workers, and enhancing

the skills of employees are essential for organizations to have quality performance.

Given the importance of human capital for organization success, personnel instabil-

ity is a relatively understudied area of public administration (Meier & Hicklin, 2008;

Raffel, 2007; Selden & Moynihan, 2000). Most works on turnover analyze its effect on

organizational performance. The leading theory is that personnel instability leads to

lower organization performance (Meier & Hicklin, 2008; O’Toole & Meier, 2003).

However, a refined version of the theory acknowledges benefits from turnover (like

the organization staying fresh, bringing in new ideas, and the dismissal of ineffective

workers) that suggest its nonlinear relationship with performance (Abelson & Bay-

singer, 1984; Meier & Hicklin, 2008; Mosher & Kingsley, 1936).

There remain many research questions on the consequences of employee turn-

over beyond performance. This study examines its effect on policy stability. As

stated before, PET focuses on procedures as sources of friction. However, even if

structures and procedures can stay constant, personnel turnover induces another

type of instability for the organization that changes the dynamics among actors

(Weber, 1946). High turnover can signal problems and dissatisfaction among

employees (Rainey, 2003). Additional stress occurs by replacing and retraining work-

ers—it can be a costly endeavor that takes a substantial amount of resources within

the organization (Griffeth & Hom, 2001; Wright & Kim, 2004). In organizations with

high turnover, there should be more friction overall, yielding more punctuated

changes. Policymakers may feel the need to enact major policy changes to retain

employees. In organizations with low turnover, the friction models suggest there is

less friction within the organization leading to less punctuation.

High turnover could also be a conscious effort by the organization to phase out

current employees for new workers. This can occur when an organization is redevel-

oping and redirecting its mission. Turnover, then, is not necessarily a voluntary

Flink: Rethinking Punctuated Equilibrium Theory 109

move by the employee to leave a poor working environment, but a planned effort by

management to bring in a new workforce and new direction for the organization. In

this case, large policy changes could be associated with friction from the evolution of

the organization stimulated by managerial decisions. Organizations that are not

experiencing a redefinition should have a more stable workforce, low friction, and

more incremental policy changes. This leads to the personnel instability hypothesis:

Hypothesis 2: High personnel instability decreases the expected proportion of incre-

mental budgetary changes and increases the expected proportion of medium and

punctuated budgetary changes.

4. Data and Methods

Data for this study come from Texas school districts. This large dataset provides

budgetary, performance, employee, and administrative information for school dis-

tricts within Texas. Given the districts’ similar policy environment, structure, and

goal of educating students, this dataset allows for a comparison of hundreds of simi-

lar organizations. In addition, it provides an adequate time span, 1993 to 2010, to

examine the dynamics of punctuated equilibrium by capturing the rare events of pol-

icy punctuations.

Similar to other studies in PET, the dependent variable in this study will be a

budgetary measure. School districts are expected to fund many diverse functions

from athletics to gifted and talented classes, to student transportation, to bilingual

education. Districts have numerous budget categories. With some limitations, school

districts are granted discretion in how they allocate their funds across programs.

Budgetary decisions are made in light of current environmental demands of the

organization. At its best, budgetary decisions are made with the intent of addressing

organization needs and allocating funds to programs that will yield the most benefits

(as viewed by decision makers, but this can be a source of friction).

For the analysis in this study, the dependent variable is the annual percentage

change in instructional spending per pupil. Instructional spending per student is one

of the core program funds for all school districts. It represents one type of educa-

tional strategy that allocates funds directly to educating students. Since this is one of

the most important functions of districts, managers will make budgetary decisions to

protect these funds from financial environmental turbulence. Meier and O’Toole

(2009) find that when the overall budget falls, instructional spending per student is

only cut a fraction compared to the overall budget change. Changes in this category

represent pointed decisions by managers—they do not solely reflect the availability

of funds for school districts from state and local sources.

Analyses follow methodology proposed in Robinson et al. (2007) by dividing the

dependent variable (annual change in instructional spending per student) into five

categories based on the size of change. The categories are: negative punctuations,

medium negative changes, incremental changes, medium positive changes, and posi-

tive punctuations. The division of categories is determined by laying a normal curve

over the histogram of budgetary changes. This leads to four intersections—two near

110 Policy Studies Journal, 45:1

the central part of the distribution and two near the tails of the distribution—that

serve as the threshold cut points between the five categories. Using this method cre-

ates a nonarbitrary way to determine incremental, medium, and punctuated

changes.3 The frequency of budgetary changes within the five categories is displayed

in Table 1.

The hypotheses cover each of these five categories (without specifying differen-

ces between positive and negative changes). Thus far, scholars have not put a lot of

effort into theorizing on the differences between medium and punctuated changes,

nor positive and negative changes. Generally, hypotheses explain incremental and

nonincremental changes and do not differentiate between positive and negative

changes. In this study, predictions are similar for each of the nonincremental catego-

ries, given that scholars have not demonstrated the uniqueness of these categories.

This study will examine if differences do exist.

As discussed above, the two explanatory variables to capture alternative

sources of friction are organizational performance and personnel instability. The

percentage of students in a district that passed the annual statewide standardized

test will be used to assess organizational performance. This is the customary mea-

sure of performance in public administration (studies that use educational data)

and education literatures. Personnel instability is measured by the percent of

teacher turnover within a school district. This is another common measure in the

education and public administration literatures (Meier & Hicklin, 2008; O’Toole

& Meier, 2003, 2009). Since performance assessment and turnover typically hap-

pen at the end of a school year, the lagged values of each of the measures are

used in the empirical model—it is more plausible the prior year influences the

current year budgetary changes.

Revisiting the two critiques of institutional friction conceptualizations (they char-

acterize only the policy process and stay relatively stable over time), both of these

variables hold up to these points. In regards to the process, both of these measures

do not refer to the structure of decision-making processes. Organizational perform-

ance should influence budgetary changes, but it is not an indicator of policy proc-

esses in the same way as conceptualizations of institutional friction. Personnel

instability is a little less clear on this issue. The measure actually assesses the stability

of teachers within a school district. In public administration terms, teachers are char-

acterized as street-level bureaucrats. While past measures of institutional friction

Table 1. Distribution of Budgetary Changes (Dependent Variable)

Change Category Frequency Percent

Negative punctuation 57 0.45 Medium, negative 1,964 15.42 Incremental 8,675 68.12 Medium, positive 1,963 15.42 Positive punctuation 75 0.59

N: 12,734. Kurtosis of distribution of budgetary changes (continuous vari- able): 41.84.

Flink: Rethinking Punctuated Equilibrium Theory 111

have considered bureaucratization, it was meant to indicate a concentration of deci-

sion making. In school districts, budgetary decisions are top-down process that typi-

cally do not involve input from all levels of the organization. Teachers do not have a

large amount of input in budgetary decision making. Thus, this measure of bureauc-

ratization is a measure of stability within an organization, not of centralization of

decision-making power.

Fluctuations occur frequently in both of these variables, as well. For example, in

the present sample, the average annual percentage change is 2.99 for performance

and 13.45 for turnover. Also in this setting, organization size and centralization have

been examined as measures of institutional friction for other work. The average

annual percentage change for organization size is 0.75 and 0.54 for centralization.

Within this sample, there are greater alterations for the two new measures of friction

introduced in this study.

Control variables are added to the model to account for institutional friction.

Measures for centralization (percent of school district’s budget dedicated to central

bureaucracy) and centralization squared are included in the model. The squared

term is necessary to account for the rising and then declining impact of centralization

for organizations (Ryu, 2011). In other words, increasing centralization benefits

organizations only to a certain point. Organizational size (student enrollment) and

growth (percentage change in student enrollment) are also included as control varia-

bles. History of punctuations in the organization (experiencing a punctuation within

the previous five years) is accounted for in the models as well, given research by

Robinson et al. (2014) that finds a history of policy punctuations leads to a greater

probability of punctuations in the current time period (said differently, punctuations

occur in clusters). These control variables are also common to PET articles that use

this dataset (Robinson, 2004; Robinson et al., 2007, 2014). Table 2 displays the

descriptive statistics for all explanatory variables used in analyses.

This study adds to the literature that examines PET through multivariate statisti-

cal analyses (Robinson et al., 2007, 2014). The dependent variable (instructional

spending per student split into five categories) is designed to use multinomial logit

as the method of analysis. Multinomial logit is used when the dependent variable

consists of categories that are unordered and discrete.4 The method calculates the

probability of explanatory variables being in one category compared to a baseline

category. In this analysis, the baseline category is incremental changes.

5. Results

The results of the multinomial logit model are shown in Table 3.5

5.1. Policy Feedback: Organizational Performance Results

Organization performance is negative and statistically significant across all cate-

gories of budgetary change in the multinomial logit model. This means that as test

performance improves in a school district, it is significantly less likely that

112 Policy Studies Journal, 45:1

organizations will experience nonincremental (medium or punctuated) budgetary

changes. In terms of friction, when a district is performing at a high level, there

seems to be less friction among decision makers that is resulting in major policy

changes. For policy feedback, this means that when the feedback is good, there are

mostly small changes. When feedback is bad, however, there is a tendency for more

dramatic policy shifts.

To help illustrate the effect of organizational performance, Figure 1 shows the

predicted probability of experiencing each of the five categories of budgetary change

over the range of pass rates for the exam. In this set of predicted probabilities, all

other variables are set to their mean values. Incremental changes see dramatic growth

Table 2. Descriptive Statistics of Explanatory Variables

Variable Mean Std. Dev. Minimum Maximum

Organizational performance (standardized test pass rate) 72.42 15.70 6 100 Personnel instability (teacher turnover) 17.47 9.51 0 100 Centralization 7.39 3.71 1 73.30 Centralization squared 68.31 125.73 1 5,372.89 Organization size (logged) 6.95 1.52 1.95 12.26 Organizational growth 0.75 7.13 263.30 117.33

Organizational history (Dummy Variable) No Punctuation: 0

11,911 Punctuation: 1

823

N 5 12,734.

Table 3. The Effects of Friction on the Relative Probability of Experiencing Large and Medium Versus Incremental Budgetary Changes

Size of Change Negative

Punctuation Medium, Negative

Medium, Positive

Positive Punctuation

Policy Feedback Organizational performance (standardized test pass rate lagged)

20.024* 20.007* 20.034* 20.044* 23.25 23.79 220.42 26.99

Endogenous Organization Change Personnel instability (teacher turnover lagged) 0.033* 0.022* 20.002 0.013

3.91 7.86 20.79 1.56 Institutional Friction

Centralization 20.083 20.223* 20.164* 20.202* 21.29 211.44 28.39 23.46

Centralization squared 0.003** 0.005* 0.004* 0.004* 2.18 7.37 6.25 3.41

Organization size (logged) 20.725* 20.470* 20.482* 21.090* 24.99 217.80 217.95 28.43

Organizational history 2.155* 0.631* 0.191 1.247* 6.57 6.45 1.79 4.35

Organizational growth 0.014 0.032* 20.008** 0.011 1.47 9.24 22.14 1.16

Z-score below each coefficient. N 5 12,734. LR test: 1,730.76, p< 0.00. BIC: 21,301.385. Pseudo R2: 0.08. PCP: 68.75 %; PMP: 68.12 %; PRE: 1.95 %. *= p< 0.05 **= p< 0.01

Flink: Rethinking Punctuated Equilibrium Theory 113

as organization performance improves. This is consistent with Hypothesis 1 that

states that low-performing organizations will have a decrease in incremental changes.

The two categories of medium size changes offer mixed support for the hypothe-

sis (low performance increases the expected proportion of medium size budgetary

changes). For medium, positive changes the hypothesis has support—there is a sig-

nificant decrease of positive budgetary changes as performance improves. In con-

trast, medium, negative changes do not see much of a change over the spectrum of

pass rates.

These results are surprising and theoretically interesting considering previous

research. In analyses of PET, positive and negative changes are usually combined

into one variable representing the magnitude of the size of the budgetary change

(medium or punctuated). These studies typically contain a sentence or two in the

conclusion stating scholars should begin to theorize about the differences in positive

and negative budgetary changes (Robinson et al., 2014). The results presented here

say, yes, scholars do need to move in that direction. In Figure 1, positive and nega-

tive budgetary changes have differing slopes—one is significantly changing across

the spectrum of friction, the other is not. The findings suggest the potential for new

theoretical developments on the direction of policy change, not just the magnitude.

For punctuated changes, there is little evidence to support the hypothesis. Punc-

tuated changes, both positive and negative, are very small in their predicted proba-

bilities. Across the range of organization performance, both categories of punctuated

change remain close to zero and behave in similar manners (unlike medium

changes). Given the rarity of punctuations, it seems there should be less emphasis in

the literature in explaining their occurrence—the interesting trade-off occurs between

incremental and medium size changes.

The stark difference in the use between punctuated and medium changes has

been masked by previous works that combine both of these categories into one

“nonincremental” category. By dividing nonincremental changes between medium

and punctuated changes, a new understanding of PET is gained by seeing how little

Figure 1. Predicted Probabilities of Categories of Budgetary Changes over Organizational Perform- ance (District Student Pass Rate of Exam).

114 Policy Studies Journal, 45:1

punctuations are predicted to occur versus medium changes. Medium changes

appear to be a more popular way for the release of friction in a policy subsystem.

Scholars should make an effort to theorize on the occurrence of medium changes.

5.2. Endogenous Organizational Change: Personnel Instability Results

Personnel instability again gives mixed support for Hypothesis 2. From Table 3,

personnel instability is positive and statistically significant for the negative categories

of changes and insignificant for the positive changes. In other words, as turnover

increases, organizations are more likely to experience negative medium and negative

punctuated budgetary changes than incremental changes. There is no statistically

significant finding between incremental and positive medium or punctuated

changes. These findings demonstrate that endogenous organization change inconsis-

tently stimulates policy changes.

Similar to Figure 1, Figure 2 displays the predicted probabilities (with all other

variables held at their means) for each of the five categories of budgetary changes

over the range of turnover. From the graph, a statistically significant decrease in

incremental budgetary changes is present as turnover increases. This declining trend

supports Hypothesis 2. In relation to friction, low employee turnover signals less

stress within the organization leading to more incremental budgetary changes.

The findings for medium size budgetary changes again give mixed results.

Hypothesis 2 stated that high personnel instability increases the expected proportion

of medium size budgetary changes. In support of the hypothesis, negative medium

size changes increase as personnel instability increases. In thinking about the specific

variables, this makes sense. As more teachers are leaving the district, money is

slowly decreasing from instructional expenditures. As the classrooms become unsta-

ble, schools are pulling funds from that function.

Against the hypothesis, medium positive budgetary changes see a slight

decrease as turnover increases. The insignificance of this finding is very interesting.

Figure 2. Predicted Probabilities of Categories of Budgetary Changes over Personnel Instability (Per- cent Teacher Turnover).

Flink: Rethinking Punctuated Equilibrium Theory 115

One might expect to see larger, positive budgetary changes as turnover increases as

an effort to retain employees or as managerial effort to redevelop the organization

around new employees. These results do not support this idea—when turnover

increases it seems money is more likely to be taken away, leading to a more tense

work environment opposed to more money being spent to create a better work envi-

ronment and encourage employee retention. Like the results of performance, these

findings also support separately theorizing and empirically testing negative and pos-

itive changes.

Hypothesis 2 also predicts that with increased turnover comes increased friction,

thus leading to an increase in punctuations. However, there is little support for either

hypothesis. Again, positive and negative punctuations hover around the zero mark

and do not move much across the range of personnel instability. Like Figure 1, it

suggests more of the action takes place between incremental and medium size

changes, rather than punctuations. Only a small part of the budgetary change picture

is described by punctuations.

Lastly, the control variables for institutional friction are examined to check for

consistency with the literature. Every variable is significant in the expected direction

except centralization—it is statistically significant in the negative direction for three

of the categories. This is a contradiction to past studies (Robinson, 2004; Robinson

et al., 2007) that have indicated an increase in centralization yields greater probabil-

ities of nonincremental changes. However, this model contains a variable for central-

ization squared that is positive and statistically significant. This suggests a nonlinear

U-shaped relationship between centralization and budgetary changes.

6. Conclusion

The findings in this study present new theoretical insights to the PET literature.

Returning to the roots of PET, the theoretical reasons for policy changes were

extended by examining policy feedback and endogenous organization change. While

traditional conceptualizations of institutional friction measure the process of decision

making, the expanded understanding of friction presented in this study captures the

features of organizations that fluctuate, stimulate friction within the policy subsys-

tem, and give substance to the interactions of those in the organization that influence

policy changes.

Drawing from public administration literature, organizational performance and

personnel stability were examined as policy feedback and endogenous organization

change, respectively. These measures serve as a way to capture alternative sources of

friction in a policy subsystem. Using data from Texas school districts, it was found

that low district pass rates on the statewide standardized test as well as high teacher

turnover led to a decrease in incremental budgetary changes for instructional spend-

ing (a core expenditure of school districts). These findings give scholars a new

understanding of the causes of policy change.

Figures 1 and 2 brought new insight to separating positive and negative budget-

ary changes (something not standard to this literature). The figures show that the

predicted probabilities for positive and negative medium changes have unique

116 Policy Studies Journal, 45:1

slopes, meaning they are being utilized in different circumstances for organizations.

This study represents a first step into understanding and theorizing beyond the mag-

nitude of change, but to the direction of change. Increases and decreases in policy

outcomes can vastly impact society. An organization experiencing a medium size

budgetary change needs to know if it is a positive or negative change to take appro-

priate courses of actions. Finding out the unique stimuli for positive and negative

changes not only gives a better understanding of the policy process but also provides

valuable information to those within organizations.

The predicted probability graphs demonstrated little support for the punctuation

hypotheses, both positive and negative. In fact, the predicted probabilities for punc-

tuations remained close to zero across each of the figures. The graphs show greater

probability and fluctuations among the use of medium size changes. Perhaps schol-

ars should devote more work to theorizing on medium size changes, instead of

punctuations. This can still relay important information on how organizations and

institutions handle friction within a subsystem.

The bridging of public administration theory and PET gives ideas for future

research of other dimensions of friction or factors that can influence policy changes.

The management strategies—prospector, defender, or reactor (Miles, Snow, Meyer,

& Coleman, 1978)—used in organizations could influence policy changes. In simplest

of expectations, we would expect managers that predominantly use a defender strat-

egy to have a propensity toward incremental changes. Prospectors and reactors

would be less apt to consistently engage in incremental policy changes.

Drawing from race and ethnic politics, the racial composition of clientele and

managers could also create tension and friction in an organization. Diversity in

organizations (racial diversity in this example, but diversity can take a variety of

forms) can lead to conflicting needs or views on the direction of the organization.

Future research could also examine and compare many dependent variables of pol-

icy change (not just core functions) to see how they may fluctuate differently. What

type of friction triggers change in certain policy areas? There may be unique mecha-

nisms of policy change for minority interests versus majority interests.

Future work should also examine growth hypotheses—how the changes in per-

formance (and other factors) affect policy changes. The analyses in this study con-

sider only the absolute level of performance and level of turnover. To illustrate, in

the context of the standardized test pass rate for school districts, individual organiza-

tions have unique target levels for performance. For some schools, 75 percent student

test pass rate is acceptable. For another school, 75 percent is extremely low. Perhaps

a steady decline or growth in performance, whatever the absolute level, affects policy

changes.

Other research could center on how these unique types of friction interact to

affect policy dynamics. The strictly institutional/structural types of friction could be

conditioned by other types of friction found in performance or in organization per-

sonnel turnover. There are many possibilities in this avenue of research.

This study contributes to our understanding of policy change, but more broadly,

adds to our knowledge of how decision makers address organizational issues

through the budgetary process. Policy feedback and endogenous organization

Flink: Rethinking Punctuated Equilibrium Theory 117

change influenced the magnitude of budgetary changes, even while controlling for

structural forms of institutional friction and other organizational features. Although

there are still many questions left for future research, this study represents another

step to a better understanding of the policy process.

Carla M. Flink is an assistant professor in the Department of Public Administra-

tion at The University of Texas at San Antonio.

Notes

The author would like to thank Kenneth J. Meier; Scott Robinson; Kim Quaile Hill; Guy D. Whitten; Amanda Rutherford; the TAMU Project for Equity, Representation, and Governance; and four anony- mous reviewers for their help on this project.

1. Measures inside the policy subsystem or process would address the rules and structure of deciding policy. Measures outside the policy subsystem or process would encompass features like the environ- ment external to the organization/institution, changes in personnel or clientele, organization perform- ance, and so forth.

2. Baumgartner and Jones (2002) use the term “policy feedback” to describe policy changes. The authors consider two types of policy feedback: positive and negative. Positive feedback occurs when one policy change leads to a greater change. Negative feedback occurs as policy processes lead to stability and incrementalism in policy dynamics. The definition of policy feedback used in this work is unique from those definitions and conceptualizations.

3. The exact cut point percentage values are 233, 22, 10, and 35.5. These values are the interior and exte- rior intersections between a normal distribution overlaid on the histogram of annual percentage budg- etary changes. See Robinson et al. (2007) for further explanation.

4. Even though there is an order to the categories (positive to negative), the hypotheses are based on mag- nitude of the change (incremental to punctuated). This makes it unclear how to order positive and neg- ative changes of the same magnitude. Because of this, there is no clear way to order the categories. Thus, multinomial logit is used instead of ordered logit.

5. Diagnostic tests did not reveal multicollinearity among variables. The present study does violate the IIA assumption made for multinomial logit models. Multinomial probit produced results simi- lar to the logit models. The model was estimated with robust standard errors, district clustered standard errors, and year fixed effects, but the results were always similar. The standardized test switched from TAAS to TAKS in 2003. The results are still robust with the exclusion of that year. There is concern over the relationship between performance and personnel stability. While they are correlated at 20.3824, Wald and likelihood ratio tests indicate each variable adds significantly to the model and should be included. Total student enrollment serves as a proxy for total revenue and total expenditures in a district (enrollment is highly correlated with revenue and expenditures at 0.97 and 0.95, respectively). Inclusion of total revenue and expenditure variables in the model does not significantly alter the results.

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