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Monopoly and Soft Budget Constraint

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Author Info
Ilya R. Segal
Abstract

A benevolent government may decide to subsidize an unprofitable monopoly whose profits do not capture all the social surplus from its production. Anticipating this, the firm may underinvest in order to become unprofitable and extract state subsidies. The resulting welfare loss may exceed by many times the deadweight cost of monopoly pricing. Committing the firm to a price ceiling may soften its budget constraint and thus reduce welfare. Competition can harden budget constraints in industries in which free entry is socially excessive.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 29 (1998)
Issue (Month): 3 (Autumn)
Pages: 596-609
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Handle: RePEc:rje:randje:v:29:y:1998:i:autumn:p:596-609

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  1. Lars-Hendrik Röller & Zhentang Zhang, 1999. "Provision of Social Goods and Soft Budget Constraints," CIG Working Papers FS IV 99-27, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  2. Alberto Cavaliere, 2006. "Privatization and Efficiency: from Principals and Agents to Political Economy," Working Papers 2006.99, Fondazione Eni Enrico Mattei. [Downloadable!]
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  3. Timofeev Andrey, 2002. "Fiscal Decentralization and Soft Budget Constraints," EERC Working Paper Series 01-12e, EERC Research Network, Russia and CIS. [Downloadable!]
  4. Haizhou Huang & Chenggang Xu, 2001. "Financial Institutions, Contagious Risks, and Financial Crises," William Davidson Institute Working Papers Series 444, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  5. Lars-Hendrik Roeller & Zhentang Zhang, 2003. "Provision of Social Goods and Soft Budget Constraints," Discussion Papers of DIW Berlin 360, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  6. Auriol, Emmanuelle & Picard, Pierre M, 2006. "Infrastructure and Public Utilities Privatization in Developing Countries," CEPR Discussion Papers 6018, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Maria Amelina & Dmitry Gershenson, 2002. "Seductions of an Underdevelopment Trap: Systemic Impediments to Agricultural Reform in Russia," IMF Working Papers 02/126, International Monetary Fund. [Downloadable!]
  8. Auriol, Emmanuelle & Picard, Pierre, 2008. "Government Outsourcing: Public Contracting with Private Monopoly," IDEI Working Papers 382, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  9. Ela Glowicka, 2006. "Effectiveness of bailouts in the EU," Discussion Papers 176, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  10. David Martimort & Stephane Straub, 2006. "Privatization and Changes in Corruption Patterns: The Roots of Public Discontent," ESE Discussion Papers 147, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  11. Maskin, Eric & Xu, Cheng-Gang, 2001. "Soft Budget Constraint Theories: From Centralization to the Market," CEPR Discussion Papers 2715, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Auriol, Emmanuelle & Picard, Pierre, 2004. "Privatizations in Developing Countries and the Government's Budget Constraint," IDEI Working Papers 459, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  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. [Downloadable!] (restricted)
  14. Janos Kornai & Eric Maskin & Gerard Roland, 2002. "Understanding the Soft Budget Constraint," Economics Working Papers 0019, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  15. Boitani, Andrea & Cambini, Carlo, 2006. "“To Bid or Not to Bid, This is the Question: The Italian Experience in Competitive Tendering for Local Bus Services”," MPRA Paper 2253, University Library of Munich, Germany. [Downloadable!]
  16. Kenya Fujiwara, 2006. "Corporate Debt Restructuring and Public Financial Institutions in Japan -Do Government-Affiliated Financial Institutions Soften Budget Constraints?-," Finance Working Papers 672, East Asian Bureau of Economic Research. [Downloadable!]
  17. Jiahua Che, 2000. "Decentralized Financing, Centralized Financing and the Dual Track System: Toward a New Theory of Soft Budget Constraints," William Davidson Institute Working Papers Series 261, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  18. Willner, Johan & Parker, David, 2002. "The Relative Performance of Public and Private Enterprise Under Conditions of Active and Passive Ownership," Centre on Regulation and Competition (CRC) Working papers 30591, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
  19. Mehrdad VAHABI, 2001. "The Soft Budget Constraint : A Theoretical Clarification," Discussion Papers (REL - Recherches Economiques de Louvain) 2001024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  20. E Auriol & P M Picard, 2004. "Liberal Regulation: Privatization of Natural Monopolies with Adverse Selection," The School of Economics Discussion Paper Series 0403, Economics, The University of Manchester. [Downloadable!]
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