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

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.

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Year of publication:	1992
Authors:	Hardy, Daniel C.
Published in:	IMF Staff Papers. - Palgrave Macmillan, ISSN 1020-7635. - Vol. 39.1992, 2, p. 310-329
Publisher:	Palgrave Macmillan

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Extent:	application/pdf
Type of publication:	Article
Classification:	D78 - Positive Analysis of Policy-Making and Implementation ; H32 - Firm ; J65 - Unemployment Insurance; Severance Pay; Plant Closings ; P26 - Political Economy; Property Rights
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008915438