Reputation and the Soft-Budget Constraint

Alexei Deviatov () and Barry Ickes ()
Additional contact information
Barry Ickes: Pennsylvania State University

No w0078, Working Papers from New Economic School (NES)

Abstract: We study the role of reputation in dealing with the soft-budget constraint. We examine whether the reputation of a borrower can lead to repayment in an environment where enforcement is weak. We also introduce lenders’ reputation and examine how this impacts on the allocation of borrowers. We find that reputation can harden budget constraint and improve welfare, although it can never fully eliminate softness. We also show that lenders who acquire a reputation for being tough can earn higher profits than lenders with reputations for being soft.

JEL-codes: F34 G33 P34 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2005-07
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Related works:
Working Paper: Reputation and the Soft-Budget Constraint (2005)
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