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The Soft Budget Constraint: An Institutionalist Approach

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  • Vahabi, Mehrdad

Abstract

In this paper, we reconsider the concept of the BC in the light of an institutionalist approach. Kornai’s interpretation of the concept provides the basis of such an approach. He defines the BC as a conditional empirical fact regarding the specific behavioural regularity of agents that is determined by particular institutional setups. Different degrees of budget constraint (ranging from a SBC to a HBC) are thus considered as empirical facts exogenously given in different institutional contexts. In this perspective, the BC is related to the survival behaviour of boundedly rational (satisficing) agents. It implies neither market equilibrium nor optimality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17649.

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Date of creation: 09 Nov 2002
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Handle: RePEc:pra:mprapa:17649

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Keywords: Soft budget constraint; hard budget constraint; institutions; Say’s Principle; Walras’ Law;

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  13. Kornai, Janos, 2001. "Hardening the budget constraint: The experience of the post-socialist countries," European Economic Review, Elsevier, vol. 45(9), pages 1573-1599, October.
  14. 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).
  15. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766, September.
  16. Vahabi, Mehrdad, 1998. "The Relevance of the Marshallian Concept of Normality in Interior and Inertial Dynamics as Revisited by Shackle and Kornai," Cambridge Journal of Economics, Oxford University Press, vol. 22(5), pages 547-72, September.
  17. Kornai, J, 1979. "Resource-Constrained versus Demand-Constrained Systems," Econometrica, Econometric Society, vol. 47(4), pages 801-19, July.
  18. Kornai, Janos & Weibull, Jorgen W., 1983. "Paternalism, buyers' and sellers' market," Mathematical Social Sciences, Elsevier, vol. 6(2), pages 153-169, November.
  19. J. Kornai, 1998. "Legal Obligation, Non-Compliance and Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 9.
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