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Journal of Economic Literature Vol. 41 No. 4 2003

Understanding the Soft Budget Constraint

János Kornai1,2; Eric Maskin3; Gérald Roland4

1 Harvard University · 2 Collegium Budapest · 3 Princeton University · 4 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.

DOI
10.1257/jel.41.4.1095
Volume
41
Issue
4
Pages
1095-1136
Language
en
Sources
crossref openalex

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