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SOFT BUDGET CONSTRAINT RECONSIDERED
Author(s) -
Vahabi Mehrdad
Publication year - 2014
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.2011.00403.x
Subject(s) - budget constraint , economics , constraint (computer aided design) , dimension (graph theory) , profit (economics) , benchmark (surveying) , microeconomics , perspective (graphical) , connotation , neoclassical economics , mathematical economics , computer science , mathematics , geometry , geodesy , artificial intelligence , pure mathematics , geography , linguistics , philosophy
ABSTRACT 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.