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The Soft Budget Constraint: An Institutionalist Approach

Vahabi, Mehrdad (2002): The Soft Budget Constraint: An Institutionalist Approach.

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Abstract

In this paper, we reconsider the concept of the BC in the light of an institutionalist approach. Kornai’s interpretation of the concept provides the basis of such an approach. He defines the BC as a conditional empirical fact regarding the specific behavioural regularity of agents that is determined by particular institutional setups. Different degrees of budget constraint (ranging from a SBC to a HBC) are thus considered as empirical facts exogenously given in different institutional contexts. In this perspective, the BC is related to the survival behaviour of boundedly rational (satisficing) agents. It implies neither market equilibrium nor optimality.

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