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Soft Budget Constraint

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Abstract

The concept of ‘soft budget constraint’ was first proposed by Janos Kornai to explain the pervasiveness of shortages under socialism. It has subsequently been understood mostly as a dynamic incentive problem whereby an investor would like to commit not to bail out an agent but ends up deciding on a bailout ex post. The concept has had a large number of applications in the transition literature but more broadly in economics as it can shed light on important episodes of bailouts.

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Authors and Affiliations

  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    Gérard Roland

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  1. Gérard Roland
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Roland, G. (2018). Soft Budget Constraint. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2770

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