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Understanding the Soft Budget Constraint

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  • Janos Kornai

    (Department of Economics, Harvard University)

  • Eric Maskin

    (School of Social Science, Institute for Advanced Study)

  • Gerard Roland

    (Department of Economics, University of California, Berkeley)

Abstract

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.

Suggested Citation

  • Janos Kornai & Eric Maskin & Gerard Roland, 2002. "Understanding the Soft Budget Constraint," Economics Working Papers 0019, Institute for Advanced Study, School of Social Science.
  • Handle: RePEc:ads:wpaper:0019
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