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Presentation of Section 4

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  • Mehrdad Vahabi

    (University Sorbonne Paris Nord)

Abstract

This section focuses on the concept of Soft Budget Constraint (SBC), that was coined by Kornai, and widely regarded as his most important contribution to economics by Western economists. SBC describes a situation where socialist enterprises can continue operating despite serious financial problems or even insolvency. This is because they can spend more than their revenues because of a paternalist state that is prepared to bailout bankrupt enterprises ex post. It is noteworthy that the bailout possibility is not limited to an isolated case; it covers recurrent financial aids to enterprises suffering from persistent losses. Consequently, the socialist directors expect that the state would rescue their enterprises as an insurer of last resort.

Suggested Citation

  • Mehrdad Vahabi, 2025. "Presentation of Section 4," Palgrave Studies in the History of Economic Thought,, Palgrave Macmillan.
    • Handle: RePEc:pal:pshchp:978-3-031-83239-0_13
    DOI: 10.1007/978-3-031-83239-0_13
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