I would like to thank three anonymous referees for their valuable comments and Sylvie Lupton and Mandana Vahabi for their inspiring and insightful remarks on different parts of the paper. Obviously, all the remaining errors are mine.
SOFT BUDGET CONSTRAINT RECONSIDERED
Article first published online: 27 JUL 2011
© 2011 Board of Trustees of the Bulletin of Economic Research and John Wiley & Sons Ltd
Bulletin of Economic Research
Volume 66, Issue 1, pages 1–19, January 2014
How to Cite
Vahabi, M. (2014), SOFT BUDGET CONSTRAINT RECONSIDERED. Bulletin of Economic Research, 66: 1–19. doi: 10.1111/j.1467-8586.2011.00403.x
- Issue published online: 2 DEC 2013
- Article first published online: 27 JUL 2011
- exogenous and endogenous SBC;
- income redistribution;
- soft and hard budget constraints;
- Walras’ Law;
This paper demonstrates that Kornai's original concept of the soft budget constraint (SBC) as a theoretical innovation in micro-theory disguises income redistributions that are essentially macroeconomic relationships. The SBC also postulates a competitive market economy as the benchmark of hard budget constraint (HBC) and efficiency. A recent formal theory explains the SBC as a component of profit-maximizing strategic behaviour. From this perspective, the SBC can be integrated into the new microeconomics, but it loses its specific institutional connotation and its macroeconomic dimension. The SBC is thus included in ubiquitous market-type relationships, particularly complete (optimal) contractual arrangements.