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Understanding the Soft Budget Constraint

  • J�nos Kornai
  • Eric Maskin
  • G�rard Roland

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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Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 41 (2003)
Issue (Month): 4 (December)
Pages: 1095-1136

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Handle: RePEc:aea:jeclit:v:41:y:2003:i:4:p:1095-1136
Note: DOI: 10.1257/002205103771799999
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