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The Economics of Postponement: Zombie Firms, Enforcement, and the Invisible Cost of Deferred Consequence

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  • Lagrotta, Luiz Carlos Nacif

Abstract

This article examines the structural convergence between the phenomenon of so-called zombie firms and weaknesses in administrative enforcement in Brazil, through an incentive-based institutional framework. It begins with the empirical observation that the artificial survival of financially unviable firms, sustained by debt rollovers and delayed adjustments, is not an episodic deviation but a structural pattern with significant competitive and macroeconomic effects. In parallel, the paper analyzes the dynamics of anti-corruption enforcement, arguing that formal severity of sanctions does not ensure effective discipline when detached from decisional predictability and timely application. The central thesis maintains that both phenomena derive from the same institutional matrix: the temporal dilution of consequences as a strategic variable. When financial risk does not entail effective loss and legal risk does not entail credible sanction, both market discipline and normative discipline weaken. The outcome is allocative distortion, asymmetric competition, and diminished long-term growth. The article concludes that restoring consequence — clear, proportional, and timely — is essential to realign incentives and strengthen systemic efficiency.

Suggested Citation

  • Lagrotta, Luiz Carlos Nacif, 2026. "The Economics of Postponement: Zombie Firms, Enforcement, and the Invisible Cost of Deferred Consequence," LawArchive kg9rw_v1, Center for Open Science.
    • Handle: RePEc:osf:lawarc:kg9rw_v1
    DOI: 10.31228/osf.io/kg9rw_v1
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