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A signaling approach to soft budgets

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  • Saljanin, Salem

Abstract

A new explanation for soft budget constraints is given. Projects of an agent are often the more profitable, the more confident the agent is in the principal's competence and/or supports. Principals can signal support and/or competence through a soft budget constraint.

Suggested Citation

  • Saljanin, Salem, 2011. "A signaling approach to soft budgets," Economics Letters, Elsevier, vol. 111(3), pages 272-274, June.
    • Handle: RePEc:eee:ecolet:v:111:y:2011:i:3:p:272-274
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    References listed on IDEAS

    as
    1. J. Kornai & E. Maskin & G. Roland, 2004. "Understanding the Soft Budget Constraint," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 11.
    2. M. Dewatripont & E. Maskin, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 541-555.
    3. Kornai, J, 1979. "Resource-Constrained versus Demand-Constrained Systems," Econometrica, Econometric Society, vol. 47(4), pages 801-819, July.
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    Keywords

    Soft budget constraint Signaling;

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