A Theory of the Soft-Budget Constraint
AbstractThis paper studies the soft budget constraint problem in a principal-agent model. The agent screens projects of and makes initial investment in the projects that have passed the screening. He then finds the types of the funded projects and decides to close some of the ex post inefficient ones among them. Closing projects sends an unfavorable signal about the agent's screening effort. Under the ex ante efficient contract, the agent has incentive to refinance some of the ex post inefficient projects.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 298..
Length: 33 pages
Date of creation: Aug 1995
Date of revision:
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
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More information through EDIRC
soft budget; planner; project screening; information;
Find related papers by JEL classification:
- P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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