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Understanding the Soft Budget Constraint

2003; American Economic Association; Volume: 41; Issue: 4 Linguagem: Inglês

10.1257/jel.41.4.1095

2328-8175

János Kornai, Eric Maskin, Gérald Roland,

Economic Theory and Institutions

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.