The Soft Budget Constraint: An Institutionalist Approach

Mehrdad Vahabi

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we reconsider the concept of the BC in the light of an institutionalist approach. Kornai’s interpretation of the concept provides the basis of such an approach. He defines the BC as a conditional empirical fact regarding the specific behavioural regularity of agents that is determined by particular institutional setups. Different degrees of budget constraint (ranging from a SBC to a HBC) are thus considered as empirical facts exogenously given in different institutional contexts. In this perspective, the BC is related to the survival behaviour of boundedly rational (satisficing) agents. It implies neither market equilibrium nor optimality.

Keywords: Soft budget constraint; hard budget constraint; institutions; Say’s Principle; Walras’ Law (search for similar items in EconPapers)
JEL-codes: D01 P2 P5 (search for similar items in EconPapers)
Date: 2002-11-09
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