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The soft budget constraint

János Kornai

Acta Oeconomica, 2014, vol. 64, issue supplement1, 25-79

Abstract: The author’s ideas on the soft budget constraint (SBC) were first expressed in 1976. Much progress has been made in understanding the problem over the ensuing four decades. The study takes issue with those who confine the concept to the process of bailing out loss-making socialist firms. It shows how the syndrome can appear in various organizations and forms in many spheres of the economy and points to the various means available for financial rescue. Single bailouts do not as such generate the SBC syndrome. It develops where the SBC becomes built into expectations. Special heed is paid to features generated by the syndrome in rescuer and rescuee organizations. The study reports on the spread of the syndrome in various periods of the socialist and the capitalist system, in various sectors. The author expresses his views on normative questions and on therapies against the harmful effects. He deals first with actual practice, then places the theory of the SBC in the sphere of ideas and models, showing how it relates to other theoretical trends, including institutional and behavioural economics and theories of moral hazard and inconsistency in time. He shows how far the intellectual apparatus of the SBC has spread in theoretical literature and where it has reached in the process of “canonization” by the economics profession. Finally, he reviews the main research tasks ahead.

Keywords: soft budget constraint; bail-out; loss-making enterprise; moral hazard; time inconsistency (search for similar items in EconPapers)
JEL-codes: B52 D03 D21 H2 P51 (search for similar items in EconPapers)
Date: 2014
Note: Editors’ note: The Hungarian language series is published by the bilingual Hungarian–Slovak publishing house, Kalligram. Volume IV, containing 13 papers published already elsewhere, came out in Spring 2014. The full titles of these papers, as well as information pertaining to their accessibility in languages other than Hungarian can be found at the end of this study on pp. 78–79.
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Citations: View citations in EconPapers (13)

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Journal Article: The Soft Budget Constraint (1986) Downloads
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