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A Theory of Shortage in Socialist Economies Based on the "Soft Budget Constraint."

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  • Qian, Yingyi
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    Abstract

    This paper attributes shortages of goods in socialist economies to the soft financial constraints that firms in such economies face. A 'soft budget constraint' problem arises when the state bank is unable to make a credible commitment not to refinance bad projects once some investment costs are sunk. In such a situation, if a consumer good is also demanded by firms as an input and the seller cannot separate firms from households, the high market-clearing price would lead to welfare losses because too many bad projects would start and crowd out household consumption. Copyright 1994 by American Economic Association.

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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 84 (1994)
    Issue (Month): 1 (March)
    Pages: 145-56

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    Handle: RePEc:aea:aecrev:v:84:y:1994:i:1:p:145-56

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    Cited by:
    1. Janos Kornai & Eric Maskin & Gerard Roland, 2002. "Understanding the Soft Budget Constraint," Economics Working Papers 0019, Institute for Advanced Study, School of Social Science.
    2. Alexandre BERTIN (GREThA) & Matthieu CLEMENT (GREThA), 2007. "Poverty and shortage economy: a reappraisal with the capability approach (In French)," Cahiers du GREThA 2007-16, Groupe de Recherche en Economie Théorique et Appliquée.
    3. Kornai, János & Maskin, Eric & Roland, Gérard, 2004. "A puha költségvetési korlát - II
      [The soft budget constraint II]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 777-809.
    4. Lu, Zhengfei & Zhu, Jigao & Zhang, Weining, 2012. "Bank discrimination, holding bank ownership, and economic consequences: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 341-354.
    5. Cheng, Yuk-Shing & Chung, Kim-Sau, 2013. "Too many mothers-in-law?," Journal of Development Economics, Elsevier, vol. 105(C), pages 69-76.
    6. Brucker, Herbert & Schroder, Philipp J.H. & Weise, Christian, 2005. "Can EU conditionality remedy soft budget constraints in transition countries?," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 371-386, June.
    7. Brandt, Loren & Zhu, Xiaodong, 2001. "Soft budget constraint and inflation cycles: a positive model of the macro-dynamics in China during transition," Journal of Development Economics, Elsevier, vol. 64(2), pages 437-457, April.
    8. Yang Yao, 2004. "Government Commitment and the Outcome of Privatization in China," NBER Chapters, in: Governance, Regulation, and Privatization in the Asia-Pacific Region, NBER East Asia Seminar on Economics, Volume 12, pages 251-276 National Bureau of Economic Research, Inc.
    9. Sophie Brana & Mathilde Maurel & J�r�me Sgard, 1999. "Enterprise Adjustment and the Role of Bank Credit in Russia: Evidence from a 420 Firms Qualitative Survey," Comparative Economic Studies, Palgrave Macmillan, vol. 41(4), pages 47-69, December.
    10. Kornai, Janos, 2001. "Hardening the budget constraint: The experience of the post-socialist countries," European Economic Review, Elsevier, vol. 45(9), pages 1573-1599, October.
    11. Kornai, János, 1997. "Pénzügyi fegyelem és puha költségvetési korlát
      [Financial discipline and soft budget constraint]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 940-953.
    12. Kornai, János, 2000. "A költségvetési korlát megkeményítése a posztszocialista országokban
      [Hardening of the budget constraint in the post-socialist countries]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 1-22.
    13. Eric S. Maskin, 1999. "Recent Theoretical Work on the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 421-425, May.
    14. Fei Zhong, 2000. ""An Economic Analysis of Corruption, with Special Application to the Chinese Economy" (in Japanese)," CIRJE J-Series CIRJE-J-29, CIRJE, Faculty of Economics, University of Tokyo.

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