IDEAS home Printed from https://ideas.repec.org/a/pal/compes/v63y2021i1d10.1057_s41294-020-00134-z.html
   My bibliography  Save this article

The Soft Budget Constraint at 40: Alternative Perspectives on Its Origins

Author

Listed:
  • Michael Keren

    (The Hebrew University of Jerusalem
    Nofim Towers)

Abstract

The soft budget constraint (SBC) is over 40 years old and may seem too well known by now to need elucidation. In this paper, I discuss its origin and its causes. The concept of the soft budget constraint was coined by János Kornai, but the origin of the phenomenon that the term captures deserves discussion. Here, I ask why the SBC phenomenon came into being. Kornai considers it a manifestation of paternalism toward SOEs by superior bodies that refuse to let them go under due to symbiotic solidarity with their subordinates. I contend that there are stronger reasons, reasons that inhere in the very core of the bureaucratic allocation system—the method of material balances—that cannot allow enterprises to die just because they generate losses.

Suggested Citation

  • Michael Keren, 2021. "The Soft Budget Constraint at 40: Alternative Perspectives on Its Origins," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(1), pages 139-146, March.
    • Handle: RePEc:pal:compes:v:63:y:2021:i:1:d:10.1057_s41294-020-00134-z
    DOI: 10.1057/s41294-020-00134-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41294-020-00134-z
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41294-020-00134-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kornai, J, 1979. "Resource-Constrained versus Demand-Constrained Systems," Econometrica, Econometric Society, vol. 47(4), pages 801-819, July.
    2. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    3. J. Kornai & E. Maskin & G. Roland, 2004. "Understanding the Soft Budget Constraint," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 11.
    4. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
    5. Manove, Michael, 1971. "A Model of Soviet-Type Economic Planning," American Economic Review, American Economic Association, vol. 61(3), pages 390-406, June.
    6. repec:cup:entsoc:v:19:y:2018:i:03:p:546-560_00 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vahabi, Mehrdad, 2011. "Soft budget constraint and the parastatal sector," MPRA Paper 37926, University Library of Munich, Germany.
    2. Xu, Cheng-Gang, 2017. "Capitalism and Socialism: Review of Kornai’s Dynamism, Rivalry, and the Surplus Economy," CEPR Discussion Papers 11866, C.E.P.R. Discussion Papers.
    3. Di Guo & Haizhou Huang & Kun Jiang & Chenggang Xu, 2021. "Disruptive innovation and R&D ownership structures," Public Choice, Springer, vol. 187(1), pages 143-163, April.
    4. Mehrdad Vahabi, 2001. "The Soft Budget Constraint: A Theoretical Clarification," Post-Print hal-00629160, HAL.
    5. Soldatos, Gerasimos T., 2000. "The Firm-Bank Interaction Regime and "Softness"," MPRA Paper 58203, University Library of Munich, Germany.
    6. Vahabi, Mehrdad, 2003. "La contrainte budgétaire lâche et la théorie économique [Soft Budget Constraint and Economic Theory]," MPRA Paper 17651, University Library of Munich, Germany.
    7. Joel Wood, 2013. "The Effects of Bailouts and Soft Budget Constraints on the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 127-137, January.
    8. Justin Yifu Lin, 2007. "Development and Transition : Idea, Strategy, and Viability," Development Economics Working Papers 22709, East Asian Bureau of Economic Research.
    9. Berger, Michael & Sommersguter-Reichmann, Margit & Czypionka, Thomas, 2020. "Determinants of soft budget constraints: how public debt affects hospital performance in Austria," LSE Research Online Documents on Economics 116865, London School of Economics and Political Science, LSE Library.
    10. de Bettignies, Jean-Etienne & Ross, Thomas W., 2009. "Public-private partnerships and the privatization of financing: An incomplete contracts approach," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 358-368, May.
    11. Charles, Sébastien & El Karouni, Ilyess, 2008. "La transformation postsocialiste chinoise : ouverture économique et contrainte extérieure," L'Actualité Economique, Société Canadienne de Science Economique, vol. 84(4), pages 391-413, Décembre.
    12. Vahabi,Mehrdad, 2019. "The Political Economy of Predation," Cambridge Books, Cambridge University Press, number 9781107591370, January.
    13. Peter J. Boettke & Rosolino A. Candela, 2021. "János Kornai, the Austrians, and the political and economic analysis of socialism," Public Choice, Springer, vol. 187(1), pages 85-97, April.
    14. Rosta, Miklós, 2015. "Introduction of soft budget constraint to analyze public administration reforms. Some evidence from the Hungarian public administration reform," MPRA Paper 68473, University Library of Munich, Germany.
    15. Xiaohan Guo & Jianliang Ye & Wunhong Su & Deming Luo & Xiangrong Jin, 2022. "Do zombie firms crowd out healthy firms and slow their growth? Evidence from China," Development Policy Review, Overseas Development Institute, vol. 40(6), November.
    16. Nelly Exbrayat & Thierry Madiès & Stéphane Riou, 2013. "Bailout policy in a globalized economy," Post-Print halshs-00945455, HAL.
    17. Jan Winiecki, 2002. "An Inquiry into the Early Drastic Fall of Output in Post-communist Transition: An Unsolved Puzzle," Post-Communist Economies, Taylor & Francis Journals, vol. 14(1), pages 5-29.
    18. Berger, Michael & Sommersguter-Reichmann, Margit & Czypionka, Thomas, 2020. "Determinants of soft budget constraints: How public debt affects hospital performance in Austria," Social Science & Medicine, Elsevier, vol. 249(C).
    19. Olschewski, Sebastian & Jakob, Lukas & Schmidt, Ulrich, 2023. "Investor preferences for positive social externalities and state-owned enterprises’ facilitated access to capital," Open Access Publications from Kiel Institute for the World Economy 266914, Kiel Institute for the World Economy (IfW Kiel).
    20. Jiang, Chunxia & Liu, Hong & Molyneux, Philip, 2019. "Do different forms of government ownership matter for bank capital behavior? Evidence from China," Journal of Financial Stability, Elsevier, vol. 40(C), pages 38-49.

    More about this item

    Keywords

    Soviet-type economies; Hardness of budget constraint; Causes of soft budget constraints; Kornai;
    All these keywords.

    JEL classification:

    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:compes:v:63:y:2021:i:1:d:10.1057_s41294-020-00134-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.