Risk Culture in Public and Private Organizations

Among the many assumptions about public management widely embraced but rarely tested is the notion that public sector managers are more averse to risk than managers in the private sector. Taking a multivariate measure of "risk culture," this study seeks to identify and to explain differences between public and private organizations. The concept of risk culture pertains to managers' perceptions that their co-workers and superiors take risks and promote risk-taking. Some of the factors examined as possible determinants of risk culture include political control, nature of reward systems, levels offormalization and red tape, bureaucratic structures, and goal ambiguity. Using questionnaire data from a variety of public and private organizations, we find that there is considerable variance in organizations' risk culture but the sector of an organization tells us little about its risk culture. Risk culture is, however, well accounted for by the various explanatory factors employed here. Particularly, a riskier culture is positively related to the willingness of top managers to trust employees and to the clarity of organizations' missions. Organizations with more red tape, weak links between promotion and performance, and high involvement with elected officials tend to have a less risky culture.