Understanding the Soft Budget Constraint
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- 1 December 2003
- journal article
- review article
- Published by American Economic Association in Journal of Economic Literature
- Vol. 41 (4) , 1095-1136
- https://doi.org/10.1257/002205103771799999
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.Keywords
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