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The Blind Man's Subsidies


  • Ruehl, Christof

    (Department of Economics, University of California, Los Angeles)

  • Vinogradov, Viatcheslav

    (Department of Mathematics and Mechanics, St.-Petersburg State University)


We model the introduction of hard budget constraints in a transition economy. The model, set in continuous time, is designed to address the interaction between the hardening of such constraints and the speed of restructuring in the industrial sector. We emphasize the impact policy changes will have on the old capital stock with respect to the rate of firm's bankruptcies on the one hand, and to increases in aggregate labor productivity on the other. We then extend the analysis to study the speed with which 'de novo' investment will take place, under alternative government policies.

Suggested Citation

  • Ruehl, Christof & Vinogradov, Viatcheslav, 1996. "The Blind Man's Subsidies," East European Series 35, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsrop:35

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    More about this item


    Economic Dynamics; Growth Theory; Economic Development; Transition Economies;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium


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