Abstract
In this paper, we focus on soft budget constraints for enterprises that are financed by banks in transition economies and analyze several theoretical models as variants of a basic sequential model. Despite various transmission channels for soft budget constraints, all models share the same sequential structure in which soft budget constraints arise due to the endogenous lack of credibility for liquidating a project instead of refinancing it. All also have the same property that refinancing is optimal ex post for the decision maker. Hence, mechanisms for hardening the budget constraint require endogenously restoring the credibility of liquidation.J. Comp. Econom.,March 1998, 26(1), pp. 18–40. SITE, Stockholm School of Economics, and CEPR, Box 650, S-11383 Stockholm, Sweden; and ECARE, Université Libre de Bruxelles, and CEPR, 39 av. Roosevelt 1050, Bruxelles, Belgium.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
