A central proposition of the Niskanen model of bureaucracy is the assumption that bureau sponsors possess little or no information on the bureau's true production and cost functions. While this assumption has been challenged by several authors, no empirical test of its importance has been offered. This article explores the way the institutional setting can affect the cost information available to sponsors and, in turn, how this information flow affects the efficiency of bureau production. The empirical analysis finds that when a local bureau sells a portion of its output to nontrustees at a per unit price (via the Lakewood Plan), cost information is then provided to its own trustees. This information appears to alter the bargaining power of the bureau.
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