THE ROLE OF INFORMATION IN A DEMOCRACY AND IN GOVERNMENT OPERATIONS:

This paper is a part of the Research Methodology Project conducted under the auspices of the Research Committee of the Government and Nonprofit Section of the American Accounting Association. The general goal of the project papers is to describe research methodologies and suggest applications in future governmental accounting research. The other project papers deal with agency theory, behavioral studies and capital markets. Our original goal was to inquire about the methodologies of political science, in the hope that insights from that discipline could be applied to government accounting research. Our preliminary exploration of the political science literature led to three findings. First, much of political science deals with non-financial aspects of government and linkages to accounting and financial reporting are not readily obvious. Second, political scientists use research methodologies similar to other social sciences. Three, there is considerable interdisciplinary research in the traditional domain of political science. The first two observations do not imply that political science is irrelevant to governmental accounting research. Rather, governmental accounting researchers must define their research objectives before turning to another discipline for specific insights. The third observation calls for an assessment of the unique contributions that could be made by accounting researchers. We have therefore adopted a working premise that a goal of governmental accounting research is to describe, explain, or predict how information (especially financial information) is used by decision makers in making economic, political, and social choices in the political system and government. This will enable us to focus on that part of political science (broadly defined) which is concerned with multi-person decision making under conditions of uncertainty and imperfect information. A body of literature that meets the above requirement exists in the interdisciplinary field of public choice. Using the methodology of economics to model and analyze politics and government operations, public choice is explicit about decision rules and incentives of participants in collective decision-making processes within specific institutional settings (e.g., democracy, representative government). In a significant way, public choice is concerned with how information can affect the production and distribution of government output. These activities are analyzed in terms of demand and supply. Consequently, there are demand models which address how voter preferences for government output are revealed and acted on by political parties and candidates for public offices. And there are supply models which deal with the relationships between the elected legislature and the bureaucracy. Although even elementary economics tells us that both demand and supply intersect to produce equilibrium price and quantity, these demand and supply models are often presented separately in the public choice literature. For ease of exposition, we will follow this practice, even though we do not regard them as alternative explanations of government output or expenditures. This paper is not intended to be a comprehensive review of the literature (see Mueller, 1979 and Mitchell, 1983). Rather, our purpose is to stimulate interest among governmental accounting researchers, who may then pursue the technical literature, notably the papers in Public Choice. With respect to demand models, we will select a relative small number of complementary but eclectic propositions and try to point out their implications for governmental financial reporting. Currently, there are ongoing efforts to modify and extend Niskanen's model of bureaucracy. We will describe this stream of research and suggest research areas where accountants have a comparative advantage. A list of suggested accounting research topics concludes the paper.