The Blind Man's Subsidies

Christof Ruehl and Viatcheslav Vinogradov
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Christof Ruehl: Department of Economics, University of California, Los Angeles
Viatcheslav Vinogradov: Department of Mathematics and Mechanics, St.-Petersburg State University

No 35, East European Series from Institute for Advanced Studies

Abstract: We model the introduction of hard budget constraints in a transition economy. The model, set in continuous time, is designed to address the interaction between the hardening of such constraints and the speed of restructuring in the industrial sector. We emphasize the impact policy changes will have on the old capital stock with respect to the rate of firm's bankruptcies on the one hand, and to increases in aggregate labor productivity on the other. We then extend the analysis to study the speed with which 'de novo' investment will take place, under alternative government policies.

Keywords: Economic Dynamics; Growth Theory; Economic Development; Transition Economies (search for similar items in EconPapers)
JEL-codes: C62 E61 P21 (search for similar items in EconPapers)
Pages: 51 pages
Date: 1996-06
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