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Understanding the Soft Budget Constraint

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Author Info
Janos Kornai () (Department of Economics, Harvard University)
Eric Maskin () (School of Social Science, Institute for Advanced Study)
Gerard Roland () (Department of Economics, University of California, Berkeley)

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Abstract

We propose a clarification of the notion of a soft budget constraint, a concept widely used in the analysis of socialist, transitional, and market economies. Our interpretation is broad enough to embrace most existing approaches to soft budget constraint phenomena and provides a classification of their causes and consequences. In light of this interpretation, we then review the theoretical literature on the subject and compare it with those on other dynamic commitment problems in economics.

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Publisher Info
Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number 0019.

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Length: 78 pages
Date of creation: Jun 2002
Date of revision:
Publication status: Published in Journal of Economic Literature, 2003, Vol. 41, issue 4, 1095-1136
Handle: RePEc:ads:wpaper:0019

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  57. Anderson, James H. & Korsun, Georges & Murrell, Peter, 2000. "Which Enterprises (Believe They) Have Soft Budgets? Evidence on the Effects of Ownership and Decentralization in Mongolia," Journal of Comparative Economics, Elsevier, vol. 28(2), pages 219-246, June. [Downloadable!] (restricted)
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