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  3. Journal of Economic Literature
  4. December 2003
  5. Understanding the Soft Budget Constraint

Journal of Economic Literature

ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)

Understanding the Soft Budget Constraint

  • János Kornai
  • Eric Maskin
  • Géard Roland
Journal of Economic Literature
vol. 41, no. 4, December 2003
(pp. 1095–1136)
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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.

Citation

Kornai, János, Eric Maskin, and Géard Roland. 2003. "Understanding the Soft Budget Constraint." Journal of Economic Literature 41 (4): 1095–1136. DOI: 10.1257/002205103771799999

JEL Classification

  • D21 Firm Behavior: Theory
  • P31 Socialist Enterprises and Their Transitions
  • H70 State and Local Government; Intergovernmental Relations: General
  • P34 Socialist Institutions and Their Transitions: Financial Economics
  • P35 Socialist Institutions and Their Transitions: Public Economics