Strategic misrepresentation

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Strategic misrepresentation is the planned, systematic distortion or misstatement of fact—lying—in response to incentives in the budget 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. 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) identified thirteen budget-process factors that appear to stimulate strategic misrepresentation in budgeting and provides 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.

Flyvbjerg et al. (2002) found that strategic misrepresentation explains widespread cost overrun in public works projects. Flyvbjerg (2008) described how strategic misrepresentation may be reduced by improved incentive alignment and reference class forecasting.