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Policy burden, privatization and soft budget constraint

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  • Lin, Justin Yifu
  • Li, Zhiyun

Abstract

We propose a new cause for the pervasive syndromes of soft budget constraint (SBC) in socialist and transition economies, that is, the policy burdens on enterprises result in the SBC problems. The policy burdens induce low effort input of firm manager and thus the low efficiency of production. And with the policy burdens, increasing market competition will make the SBC syndromes arise more likely. Privatization will not necessarily harden the budget constraint of the enterprise. On the contrary, when a SOE still bears the policy burdens, privatization will only aggravate the SBC problems. Because in this case, a private enterprise will demand more ex post subsidies from the government, than a SOE under the same condition. Our results help to explain many stylized facts in transition and socialist economies. Journal of Comparative Economics 36 (1) (2008) 90-102.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 36 (2008)
Issue (Month): 1 (March)
Pages: 90-102

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Handle: RePEc:eee:jcecon:v:36:y:2008:i:1:p:90-102

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Web page: http://www.elsevier.com/locate/inca/622864

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  5. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 12(1), pages 1-24, April.
  6. Lin, Justin Yifu, 2003. "Development Strategy, Viability, and Economic Convergence," Economic Development and Cultural Change, University of Chicago Press, vol. 51(2), pages 276-308, January.
  7. Roller, Lars-Hendrik & Zhang, Zhentang, 2005. "Bundling of social and private goods and the soft budget constraint problem," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 47-58, March.
  8. Ilya R. Segal, 1998. "Monopoly and Soft Budget Constraint," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 596-609, Autumn.
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  10. Guofu Tan & Justin Yifu Lin, 1999. "Policy Burdens, Accountability, and the Soft Budget Constraint," American Economic Review, American Economic Association, American Economic Association, vol. 89(2), pages 426-431, May.
  11. Novshek, William, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(3), pages 473-86, April.
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Cited by:
  1. TODO Yasuyuki & INUI Tomohiko & YUAN Yuan, 2012. "Effects of Privatization on Exporting Decisions: Firm-level evidence from Chinese state-owned enterprises," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 12015, Research Institute of Economy, Trade and Industry (RIETI).
  2. Johansson, Anders C. & Feng, Xunan, 2013. "CEO Incentives in Chinese State-Controlled Firms," Working Paper Series 2013-27, Stockholm China Economic Research Institute, Stockholm School of Economics.
  3. Dong Zhang & Owen Freestone, 2013. "China's Unfinished State-owned Enterprise Reforms," Economic Roundup, Treasury, Australian Government, issue 2, pages 79-102, December.
  4. Yongheng Deng & Randall Morck & Jing Wu & Bernard Yeung, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," NBER Working Papers 16871, National Bureau of Economic Research, Inc.
  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. Johansson, Anders C. & Feng, Xunan, 2013. "The State Advances, the Private Sector Retreats: Firm Effects of China’s Great Stimulus Program," Working Paper Series 2013-25, Stockholm China Economic Research Institute, Stockholm School of Economics.
  7. Crivelli, Ernesto & Staal, Klaas, 2009. "Nationalizations and effciency," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 268, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Wang F.S., Leonard & Chen, Tai-Liang, 2011. "Privatization, Efficiency Gap, and Subsidization with Excess Taxation Burden," Hitotsubashi Journal of Economics, Hitotsubashi University, Hitotsubashi University, vol. 52(1), pages 55-68, June.
  9. Justin Yifu Lin & David Rosenblatt, 2012. "Shifting patterns of economic growth and rethinking development," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(3), pages 171-194, September.
  10. Xu, Cheng-Gang, 2010. "The Institutional Foundations of China’s Reforms and Development," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7654, C.E.P.R. Discussion Papers.
  11. Lingzhi Yun & Wen Cao, 2008. "State-holding share, policy burden and performance: A study on the program of strategic investor importing for state-owned banks," Psychometrika, Springer, Springer, vol. 3(4), pages 531-547, December.
  12. Joel Wood, 2013. "The Effects of Bailouts and Soft Budget Constraints on the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 54(1), pages 127-137, January.

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