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Soft Budgets and Hard Rents: A Note

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  • Scott, Chris

Abstract

This note shows how Kornai's concept of the soft budget constraint can be decomposed into separate elements of technical inefficiency and relative price distortion. The distinction between r-budget softness and m-budget softness introduced by Gomulka is shown to correspond to the equivalent and compensating variation measures of efficiency loss. It is also argued that budget softness should be viewed as the outcome of a rent-seeking process in which a firm's action in the control sphere incurs an opportunity cost in the real sphere. Adopting such a perspective leads to a redefinition of the resource loss associated with budget softness and results in much higher estimates of the social costs of soft budgets than those proposed in the existing literature. Copyright 1990 by Kluwer Academic Publishers

Suggested Citation

  • Scott, Chris, 1990. "Soft Budgets and Hard Rents: A Note," Economic Change and Restructuring, Springer, vol. 23(2), pages 117-127.
    • Handle: RePEc:kap:ecopln:v:23:y:1990:i:2:p:117-27
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    Cited by:

    1. Raiser, Martin, 1995. "Decentralisation, autonomy and efficiency: Inconsistent reforms and enterprise performance in China," Kiel Working Papers 689, Kiel Institute for the World Economy (IfW Kiel).
    2. Vahabi, Mehrdad, 2011. "Soft budget constraint and the parastatal sector," MPRA Paper 37926, University Library of Munich, Germany.
    3. Osborne, Stefan & Trueblood, Michael A., 2001. "An Examination Of Economic Efficiency Of Russian Crop Output In The Reform Period," 2001 Annual meeting, August 5-8, Chicago, IL 20548, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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