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Soft Budget Constraints, Firm Commitments, and the Social Safety Net

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  • Daniel C. Hardy

    (International Monetary Fund)

Abstract

It is shown that the inefficiencies created by the soft budget constraint enjoyed by enterprises in Eastern Europe and elsewhere will continue so long as governments are unable credibly to threaten not to bail out loss makers. The institution of a suitable social safety net can strengthen commitment to a hard budget constraint. The burden on the social safety net can be reduced by the (endogenous) development of financial markets.

Suggested Citation

  • Daniel C. Hardy, 1992. "Soft Budget Constraints, Firm Commitments, and the Social Safety Net," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 310-329, June.
    • Handle: RePEc:pal:imfstp:v:39:y:1992:i:2:p:310-329
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    Citations

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    Cited by:

    1. Laurence Scialom & Hélène Clément-Pitiot, 1995. "Réformer l'intermédiation financière en Russie : des options," Revue Économique, Programme National Persée, vol. 46(2), pages 433-455.
    2. Ernesto Crivelli & Klaas Staal, 2010. "Nationalizations and Efficiency," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 16(2), pages 239-240, May.
    3. János Kornai, 2009. "The soft budget constraint syndrome in the hospital sector," Society and Economy, Akadémiai Kiadó, Hungary, vol. 31(1), pages 5-31, June.
    4. Perkins, Frances C., 1994. "State enterprise reform and macro-economic stability in transition economies," Kiel Working Papers 665, Kiel Institute for the World Economy (IfW Kiel).
    5. Dani Rodrik, 1993. "Trade and Industrial Policy Reform in Developing Countries: A Review of Recent Theory and Evidence," NBER Working Papers 4417, National Bureau of Economic Research, Inc.
    6. Martin Raiser, 1993. "Old habits die hard," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 28(4), pages 170-177, July.
    7. Csaba, László, 1995. "A nemzetközi pénzügyi szervezetek és a keleteurópai rendszerátalakító politika [International financial organizations and the East European policies aimed at systemic transformation]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 117-138.
    8. Mehrdad VAHABI, 2001. "The Soft Budget Constraint : A Theoretical Clarification," Discussion Papers (REL - Recherches Economiques de Louvain) 2001024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    9. Kornai, János, 2008. "A puha költségvetési korlát szindrómája a kórházi szektorban [The soft budget constraint syndrome in the hospital sector]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1037-1056.
    10. Raiser, Martin, 1993. "The no-exit economy: Soft budget constraints and the causes of success or failure of economic reforms in developing countries," Kiel Working Papers 581, Kiel Institute for the World Economy (IfW Kiel).

    More about this item

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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