Soft Budget Constraint Reconsidered

Mehrdad Vahabi

Chapter Chapter 15 in The Legacy of Janos Kornai, 2025, pp 275-302 from Palgrave Macmillan

Abstract: Abstract This paper demonstrates that Kornai’s original concept of the soft budget constraint (SBC) as a theoretical innovation in micro-theory disguises income redistributions that are essentially macroeconomic relationships. The SBC also postulates a competitive market economy as the benchmark of hard budget constraint (HBC) and efficiency. A recent formal theory explains the SBC as a component of profit-maximising strategic behaviour. From this perspective, the SBC can be integrated into the new microeconomics, but it loses its specific institutional connotation and its macroeconomic dimension. The SBC is thus included in ubiquitous market-type relationships, particularly complete (optimal) contractual arrangements.

Keywords: Exogenous and endogenous SBC; Income redistribution; Soft and hard budget constraints; Walras’ Law; D21; E12; P2; P5 (search for similar items in EconPapers)
Date: 2025
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Journal Article: SOFT BUDGET CONSTRAINT RECONSIDERED (2014)
Working Paper: SOFT BUDGET CONSTRAINT RECONSIDERED (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pshchp:978-3-031-83239-0_15

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DOI: 10.1007/978-3-031-83239-0_15

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