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Soft Budget Constraints, Transition, and Industrial Change

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Author Info

  • Mathias Dewatripont
  • Gerard Roland

Abstract

This paper surveys a number of contributions that deal with the "soft budget constraint problem," that is, the refinancing of loss-making enterprises. This problem is particularly prevalent in transition economies but is also pervasive in market economies. Following Dewatripont and Maskin [1995], the paper looks at soft budget constraints as dynamic commitment problems in the presence of sunk costs. Various ways to harden budget constraints are analyzed: privatization, demonopolization, decentralization of government, decentralization of credit, and banking reform. Finally, the paper looks at the role of budget constraints on risk taking and innovation.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 156 (2000)
Issue (Month): 1 (March)
Pages: 245-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200003)156:1_245:sbctai_2.0.tx_2-v

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Web page: http://www.mohr.de/jite

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Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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Cited by:
  1. Fabian Gouret, 2004. "The Macroeconomics of Massive Giveaways," Development and Comp Systems 0403001, EconWPA.
  2. Christa Hainz, 2007. "Business Groups in Emerging Markets: Financial Control and Sequential Investments," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 336-355, June.
  3. Budina, Nina & Garretsen, Harry & de Jong, Elke, 2000. "Liquidity constraints and investment in transition economies - the case of Bulgaria," Policy Research Working Paper Series 2278, The World Bank.
  4. Herbert Bruecker & Philipp Schroder & Christian Weise, 2004. "Can EU Conditionality Remedy Soft Budget Constraints In Transition Countries?," Royal Economic Society Annual Conference 2004 126, Royal Economic Society.
  5. Christa Hainz, 2006. "Business Groups in Emerging Markets-Financial Control & Sequential Investment," William Davidson Institute Working Papers Series wp830, William Davidson Institute at the University of Michigan.
  6. J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
  7. Nobuo Akai & Motohiro Sato, 2005. "leadership meets soft budget," CIRJE F-Series CIRJE-F-391, CIRJE, Faculty of Economics, University of Tokyo.
  8. Giannetti, C., 2009. "Relationship Lending and Firm Innovativeness," Discussion Paper 2009-08, Tilburg University, Center for Economic Research.
  9. Frederic Chabellard, 2001. "Dollarization of Liabilities in Non-tradable Goods Sector," William Davidson Institute Working Papers Series 380, William Davidson Institute at the University of Michigan.
  10. Bignebat, C. & Gouret, F., 2006. "Which Firms Have a Soft Loan ? Managers' Believes in a Cross-Country Survey in Transition Economies," Working Papers MOISA 200603, UMR MOISA : Marchés, Organisations, Institutions et Stratégies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro, IRD - Montpellier, France.

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