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Budget Constraints (budget + constraint)
Selected AbstractsA BUREAUCRAT'S PROCUREMENT STRATEGY: BUDGET CONSTRAINTS AND RATIONINGANNALS OF PUBLIC AND COOPERATIVE ECONOMICS, Issue 2 2007Signe ANTHON ABSTRACT,:,We investigate a bureaucratic principal responsible for the procurement of goods and services from private agents. The bureaucrat is evaluated on output and controlled by a limited budget. The agents maximize profit, have private information about variable production costs, and have positive outside options which are lost upon acceptance of a procurement contract. The setting is relevant for, e.g. governmental agencies. We show how this setup makes probabilistic rationing and overproduction for low-cost agents a useful tool for the bureaucrat. [source] The Limits of Discipline: Ownership and Hard Budget Constraints in the Transition EconomiesTHE ECONOMICS OF TRANSITION, Issue 3 2000Roman Frydman The existing literature on soft budget constraints suggests that firms may be subsidized for political reasons or because of the creditors' desire to recover a part of the sunk cost invested in an earlier period. In all these models hard budget constraints are viewed as being, in principle, capable of inducing the necessary restructuring behaviour on the level of the firm. This paper argues that the imposition of financial discipline is not sufficient to remedy ownership and governance-related deficiencies of corporate performance. Using evidence from the post-communist transition economies, the paper shows that a policy of hard budget constraints cannot induce successful revenue restructuring, which requires entrepreneurial incentives inherent in certain ownership types (most notably, outside investors). The paper also shows that the policy of hard budget constraints falters when state firms, because of inferior revenue performance and less willingness to meet payment obligations, continue to pose a higher credit risk than privatized firms. The brunt of state firms' lower creditworthiness falls on state creditors. But the ,softness' of these creditors, while harmful in many ways, is not necessarily irrational, if it prevents the demise of firms that are in principle capable of successful restructuring through ownership changes. [source] Theories of Soft Budget Constraints and the Analysis of Banking CrisesTHE ECONOMICS OF TRANSITION, Issue 1 2000Janet Mitchell This paper proposes a new taxonomy for classifying models of soft budget constraints which allows identification of two classes of models. Distinguishing between these classes of models is useful, as they yield SBCs in differing circumstances and have differing theoretical and policy implications. The taxonomy is used to motivate an area of economic theory in which SBC models can yield novel insights: the analysis of banking crises. A model is presented in which SBCs arising from creditor passivity have implications for the question of the appropriate policy for dealing with bad debts on troubled banks' balance sheets. The paper also compares the implications of the two classes of SBC models for the analysis of banking crises. [source] Clinical Psychology in Academic DepartmentsCLINICAL PSYCHOLOGY: SCIENCE AND PRACTICE, Issue 3 2006Karen S. Calhoun This article discusses issues and future directions for clinical psychology in academic departments of psychology. Psychology continues to be the most popular undergraduate major and departments must better prepare them for graduate study. Budget constraints continue to impact departments, resulting in challenges such as decreasing numbers of faculty, increasing dependence on external grant funds, and accompanying distortion of the reward system for faculty contributions. Increasing specialization in clinical psychology will require difficult choices. Increasing emphasis on multidisciplinary study presents both opportunities and challenges for traditional departments of psychology. The emergence of neuroscience is having a great impact and the integration of psychology and neuroscience will be a significant issue facing clinical programs. Despite challenges, academic clinical psychology can be expected to remain resilient in the face of change. [source] Long-Term Debt and Optimal Policy in the Fiscal Theory of the Price LevelECONOMETRICA, Issue 1 2001John H. Cochrane The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long-term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news of future deficits implies current inflation or future inflation. When long-term debt is present, the government can trade current inflation for future inflation by debt operations; this tradeoff is not present if the government rolls over short-term debt. The maturity structure of outstanding debt acts as a "budget constraint" determining which periods' price levels the government can affect by debt variation alone. In addition, debt policy,the expected pattern of future state-contingent debt sales, repurchases and redemptions,matters crucially for the effects of a debt operation. I solve for optimal debt policies to minimize the variance of inflation. I find cases in which long-term debt helps to stabilize inflation. I also find that the optimal policy produces time series that are similar to U.S. surplus and debt time series. To understand the data, I must assume that debt policy offsets the inflationary impact of cyclical surplus shocks, rather than causing price level disturbances by policy-induced shocks. Shifting the objective from price level variance to inflation variance, the optimal policy produces much less volatile inflation at the cost of a unit root in the price level; this is consistent with the stabilization of U.S. inflation after the gold standard was abandoned. [source] THE ECONOMICS OF ACHIEVING COMPETITIVE BALANCE IN THE AUSTRALIAN FOOTBALL LEAGUE, 1897,2004ECONOMIC PAPERS: A JOURNAL OF APPLIED ECONOMICS AND POLICY, Issue 4 2004Ross Booth This paper summarises some key aspects of a theoretical and empirical analysis of whether various labour market devices and revenue-sharing rules used in the Victorian Football League/Australian Football League (VFL/AFL) since its inception in 1897 have increased competitive balance by reducing the inequality in the distribution of player talent between clubs. The history of labour market intervention and revenue sharing in the VFL/AFL is discussed, with six different periods between 1897 and 2004 identified for analysis. Fort and Quirk's (1995) model of US professional team sports leagues is used to analyse the effectiveness of the various devices that have been used in the VFL/AFL, but only after adapting the model to allow for VFL/AFL clubs being win maximisers (subject to a budget constraint) rather than profit maximisers. The various devices used by the VFL/AFL are assessed in terms of their likely impact on competitive balance, with some significantly different theoretical predictions than under profit maximisation. It is found that free agency results in a less equal distribution of player talent under win maximisation, whilst both gate sharing and increases in shared league-revenue tend to equalise playing strengths (which is not the case under profit maximisation). Moreover, the invariance principle, that the effect of a player draft will be undermined by the sale (and/or trade) of player talent, is found not necessarily to hold under win maximisation and can be reduced or eliminated with a team salary cap. Whether the trade of players and draft choices can undermine a player draft is also considered. The conclusion reached is that a player draft, a team salary cap, and revenue sharing is the combination most likely to succeed in achieving higher levels of competitive balance. The evidence of competitive balance in the VFL/AFL is consistent with these predictions. [source] Investment in quality improvement: how to maximize the returnHEALTH ECONOMICS, Issue 1 2010Afschin Gandjour Abstract Today, one of the most pressing concerns of health-care policymakers in industrialized countries are deficits in the quality of health care. This paper presents a decision program that addresses the question in which disease areas and at what intensity to invest in quality improvement (QI) in order to maximize population health. The decision program considers both a budget constraint as well as time constraints of educators and health professionals to participate in educational activities. The calculations of the model are based on a single assumption which is that more intense quality efforts lead to larger QIs, but with diminishing returns. This assumption has been validated by previous studies. All other relationships described by the model are deduced from this assumption. The model uses data from QI trials published in the literature. Thus, it is able to assess how the vast number of published QI strategies compare in terms of their value. Copyright © 2009 John Wiley & Sons, Ltd. [source] THE FISCAL THEORY OF THE PRICE LEVEL: A CRITIQUE*THE ECONOMIC JOURNAL, Issue 481 2002Willem H. Buiter This paper argues that the `fiscal theory of the price level' (FTPL) has feet of clay. The source of the problem is a fundamental economic misspecification. The FTPL confuses two key building blocks of a model of a market economy: budget constraints, which must be satisfied identically, and market clearing or equilibrium conditions. The FTPL asssumes that the government's intertemporal budget constraint needs to be satisfied only in equilibrium. This economic misspecification has far-reaching implications for the mathematical properties of the equilibria supported by models that impose the structure of the FTPL. It produces a rash of contradictions and anomalies. [source] OPTIMAL CONTRACTS FOR CENTRAL BANKERS AND PUBLIC DEBT POLICY*THE JAPANESE ECONOMIC REVIEW, Issue 4 2004HIROSHI FUJIKI We consider how the second-best allocation corresponding to an optimal rule under the policy commitment of a central bank and a fiscal authority with a consolidated government budget constraint can be achieved, even though these authorities are unable to commit themselves to their optimal policies and ignore the strategic interaction between their policies. Our results show that the best practical institutional arrangement is to have an instrument-independent central bank that controls the money supply to determine the rate of inflation and commits itself to an inflation target that depends on fiscal variables. [source] MEAN REVERSION OF THE FISCAL CONDUCT IN 24 DEVELOPING COUNTRIESTHE MANCHESTER SCHOOL, Issue 4 2010AHMAD ZUBAIDI BAHARUMSHAH In this paper, we examine the mean reverting behaviour of fiscal deficit by analysing the fiscal position of 24 developing countries. Using annual data over the period 1970,2003 and the series-specific panel unit root test developed by Breuer et al. (Oxford Bulletin of Economics and Statistics, Vol. 64 (2002), pp. 527,546), we found the budget process for most developing countries fails to satisfy the strong-form sustainability condition. Further investigation shows the budget process for a majority of the countries is on a sustainable path (weak form) when a one-time, structural break is allowed in the model. Therefore, our empirical results suggest that the budget process in most of the sample countries is in accordance with the intertemporal budget constraint. [source] MEASURING WELFARE CHANGES IN LABOUR SUPPLY MODELS,THE MANCHESTER SCHOOL, Issue 6 2005JOHN CREEDY This paper examines the computation of welfare measures for use with labour supply models. The standard method of computing compensating and equivalent variations does not allow sufficiently for the nonlinearity of the budget constraint in such models. An alternative method is suggested and applied to contexts in which individuals are allowed to vary their hours continuously and to contexts where only a limited number of discrete hours of work are available. Discrete hours models have in recent years been used in view of the substantial econometric advantages when estimating the parameters of direct utility functions. This type of model is particularly popular in behavioural microsimulation modelling where predicted labour supply responses are calculated for policy changes. [source] THE OPTIMAL DIVISION OF GOVERNMENT EXPENDITURE BETWEEN PUBLIC GOODS AND TRANSFER PAYMENTSAUSTRALIAN ECONOMIC PAPERS, Issue 2 2010JOHN CREEDY This paper examines the optimal ratio of transfer payments to expenditure on public goods, for a given income tax rate. The transfer payment is then determined by the government's budget constraint. The optimal ratio of transfers to public good expenditure per person is expressed as a function of the ratio of the median to the arithmetic mean wage, and of the tax rate. Reductions in the skewness of the wage rate distribution are associated with reductions in transfer payments relative to public goods expenditure, at a decreasing rate. Furthermore, increases in the tax rate, from relatively low levels, are associated with increases in the relative importance of transfer payments. But beyond a certain level, further tax rate increases are associated with a lower ratio of transfers to public goods, because of adverse incentive effects. [source] One little Lebanese cucumber is not going to break the bank: Price in the choice of fresh fruits and vegetablesAUSTRALIAN JOURNAL OF AGRICULTURAL & RESOURCE ECONOMICS, Issue 2 2002Kate M. Owen This paper reports on empirical research into individual consumer behaviour in the context of fresh fruit and vegetable purchases. The discussion draws on research results from two studies conducted around the actual shopping process. The findings suggest that consumers' price response behaviour may not be consistent with that predicted by economic theory and that this could be significant at the aggregate level. The existence of ,acceptable price ranges' points to the presence of price thresholds within which consumers are relatively insensitive to price movements. Also of relevance is that the primary influence of the budget constraint may be at a broader level rather than at the level of choosing particular products. [source] Design and Inference for Cancer Biomarker Study with an Outcome and Auxiliary-Dependent SubsamplingBIOMETRICS, Issue 2 2010Xiaofei Wang Summary In cancer research, it is important to evaluate the performance of a biomarker (e.g., molecular, genetic, or imaging) that correlates patients' prognosis or predicts patients' response to treatment in a large prospective study. Due to overall budget constraint and high cost associated with bioassays, investigators often have to select a subset from all registered patients for biomarker assessment. To detect a potentially moderate association between the biomarker and the outcome, investigators need to decide how to select the subset of a fixed size such that the study efficiency can be enhanced. We show that, instead of drawing a simple random sample from the study cohort, greater efficiency can be achieved by allowing the selection probability to depend on the outcome and an auxiliary variable; we refer to such a sampling scheme as,outcome and auxiliary-dependent subsampling,(OADS). This article is motivated by the need to analyze data from a lung cancer biomarker study that adopts the OADS design to assess epidermal growth factor receptor (EGFR) mutations as a predictive biomarker for whether a subject responds to a greater extent to EGFR inhibitor drugs. We propose an estimated maximum-likelihood method that accommodates the OADS design and utilizes all observed information, especially those contained in the likelihood score of EGFR mutations (an auxiliary variable of EGFR mutations) that is available to all patients. We derive the asymptotic properties of the proposed estimator and evaluate its finite sample properties via simulation. We illustrate the proposed method with a data example. [source] Debt, Growth and Budgetary RegimesBULLETIN OF ECONOMIC RESEARCH, Issue 3 2004Sugata Ghosh E62; H41; O40 Abstract Within the Barro (1990) model of productive public services, but with the inclusion of public debt, we derive and characterize on the balanced growth path, a set of welfare-maximizing fiscal rules under two budgetary regimes , one with only the standard dynamic government budget constraint, and the other involving the golden rule of public finance. We demonstrate analytically that the optimal fiscal policy differs in the two budgetary regimes considered. We also analyse two cases within the second regime: one, where the ratio of current spending to tax revenues is parametrically given, and another, where this ratio is optimally chosen by the government. [source] A MICROFOUNDATION OF PREDATOR-PREY DYNAMICSNATURAL RESOURCE MODELING, Issue 3 2006THOMAS EICHNER ABSTRACT. Predator-prey relationships account for an important part of all interactions betweenspecies. In this paper we provide a microfoundation for such predator-prey relations in afood chain. Basic entities of our analysis are representative organisms of species modeled similar to economic households. With prices as indicators of scarcity, organisms are assumed to behave as if they maximize their net biomass subject to constraints which express the organisms' risk of being preyed upon during predation. Like consumers, organisms face a ,budget constraint' requiring their expenditure on prey biomass not to exceed their revenue from supplying own biomass. Short-run ecosystem equilibria are defined and derived. The net biomass acquired by the representative organism in the short term determines the positive or negative population growth. Moving short-run equilibria constitute the dynamics of the predator-prey relations that are characterized in numerical analysis. The population dynamics derived here turn out to differ significantly from those assumed in the standard Lotka-Volterra model. [source] Comparing in-work benefits and the reward to work for families with children in the US and the UKFISCAL STUDIES, Issue 1 2001Mike Brewer Abstract The income transfer systems for low-income families in the US and the UK try both to reduce poverty and to encourage work. In-work benefits are a key part of both countries' strategies through the earned income tax credit and the working families' tax credit (and predecessors) respectively. But tax credits are only one part of the whole tax and welfare system. In-work benefits, taxes and welfare benefits combine in both countries to provide good financial incentives for lone parents to do minimum-wage work, but poorer incentives to increase earnings further. But direct comparisons of budget constraints hide important points of detail. First, not enough is known about what determines take-up of in-work benefits. Second, the considerable differences in assessment and payment mechanisms and frequency between EITC and WFTC mean that low-income families in the US and the UK may respond very differently to apparently similar financial incentives. [source] SCHIP premiums, enrollment, and expenditures: a two state, competing risk analysisHEALTH ECONOMICS, Issue 7 2010James Marton Abstract Faced with state budget troubles, policymakers may introduce or increase State Children's Health Insurance Program (SCHIP) premiums for children in the highest program income eligibility categories. In this paper we compare the responses of SCHIP recipients in a state (Kentucky) that introduced SCHIP premiums for the first time at the end of 2003 with the responses of recipients in a state (Georgia) that increased existing SCHIP premiums in mid-2004. We start with a theoretical examination of how these different policies create different changes to family budget constraints and produce somewhat different financial incentives for recipients. Next we empirically model the impact of these policies using a competing risk approach to differentiate exits due to transfers to other eligibility categories of public coverage from exiting the public health insurance system. In both states we find a short-run increase in the likelihood that children transfer to lower- income eligibility/lower-premium categories of SCHIP. We also find a short-run increase in the rate at which children transfer from SCHIP to Medicaid in Kentucky, which is consistent with our theoretical model. These findings have important financial implications for state budgets, as the matching rates and premium levels are different for different eligibility categories of public coverage. Copyright © 2009 John Wiley & Sons, Ltd. [source] Gender gap in parents' financing strategy for hospitalization of their children: evidence from IndiaHEALTH ECONOMICS, Issue 3 2010Abay Asfaw Abstract The ,missing women' dilemma in India has sparked great interest in investigating gender discrimination in the provision of health care in the country. No studies, however, have directly examined discrimination in health-care financing strategies in the case of severe illness of sons versus daughters. In this paper, we hypothesize that households who face tight budget constraints are more likely to spend their meager resources on hospitalization of boys rather than girls. We use the 60th round of the Indian National Sample Survey (2004) and a multinomial logit model to test this hypothesis and to throw some light on this important but overlooked issue. The results reveal that boys are much more likely to be hospitalized than girls. When it comes to financing, the gap in the usage of household income and savings is relatively small, while the gender gap in the probability of hospitalization and usage of more onerous financing strategies is very high. Ceteris paribus, the probability of boys to be hospitalized by financing from borrowing, sale of assets, help from friends, etc. is much higher than that of girls. Moreover, in line with our theoretical framework, the results indicate that the gender gap intensifies as we move from the richest to poorest households. Copyright © 2009 John Wiley & Sons, Ltd. [source] Why Do Governments Privatize Abroad?INTERNATIONAL REVIEW OF FINANCE, Issue 2 2002Bernardo Bortolotti Privatization through global equity market placement has largely contributed to financial market development and integration. Despite the relevance of the fact, the reasons underlying governments' choice to sell shares of privatized companies abroad are still poorly understood. This paper presents new evidence for a sample of 233 share issue privatizations in 20 OECD countries, showing that redistribution concerns and the objective of domestic financial market development make domestic privatization more likely. However, if budget constraints are binding, governments tend to sell abroad a larger quantity of shares, particularly when corporate governance at home is weak. [source] Two-stage computing budget allocation approach for the response surface methodINTERNATIONAL TRANSACTIONS IN OPERATIONAL RESEARCH, Issue 6 2007J. Peng Abstract Response surface methodology (RSM) is one of the main statistical approaches to search for an input combination that optimizes the simulation output. In the early stages of RSM, an iterative steepest ascent search procedure is frequently used. In this paper, we attempt to improve this procedure by considering a more realistic case where there are computing budget constraints, and formulate a new computing budget allocation problem to look into the important issue of allocating computing budget to the design points in the local region of experimentation. We propose a two-stage computing budget allocation approach, which uses a limited budget to estimate the response surface in the first stage and then uses the rest of the budget to improve the lower bound of the estimated response at the center of the next design region in the second stage. Several numerical experiments are carried out to compare the two-stage approach with the regular factorial design, which allocates budget equally to each design point. The results show that our two-stage allocation outperforms the equal allocation, especially when the system noise is large. [source] Home and Community-Based Medicaid Options for Dependent Older FloridiansJOURNAL OF AMERICAN GERIATRICS SOCIETY, Issue 2 2010Adam G. Golden MD In an era of widespread state budget constraints, Florida has been increasingly challenged to provide long-term care services to a growing population of older dependent persons. The high costs of nursing home care have led the state to implement care management alternatives that offer potential for cost savings along with greater consumer satisfaction through maintenance of community residence. Although these alternative care approaches represent important opportunities to contain costs, it is equally important that professional care providers and policymakers understand how such programs operate. Here the Florida experience with eight home and community-based waiver models, in addition to the Program of All-Inclusive Care for the Elderly, are summarized and a comparative analysis offered that may enlighten the efforts of other states to establish cost-effective and attractive care management models. [source] The Salient Issue of Issue SalienceJOURNAL OF PUBLIC ECONOMIC THEORY, Issue 2 2009ARNAUD DELLIS This paper proposes a model where the set of issues that are decisive in an election (i.e., the set of salient issues) is endogenous. The model takes into account a key feature of the policy-making process, namely, that the decision-maker faces time and budget constraints that prevent him from addressing all of the issues that are on the agenda. We show that this feature creates a rationale for a policy-motivated decision-maker to manipulate his policy choice in order to influence which issues will be salient in the next election. We identify three motivations for the decision-maker to manipulate his policy choice for salience purposes. One is to make salient an issue on which he has an electoral advantage. A second motivation is to defuse the salience of an issue on which he is electorally weak, which is accomplished by either implicitly committing to a policy outcome or triggering a change of salient issue for the challenger. A third motivation is to induce the opposition party to nominate a candidate who, if elected, will implement a policy that the incumbent decision maker finds more palatable. [source] Organizational Learning and Productivity: State Structure and Foreign Investment in the Rise of the Chinese CorporationMANAGEMENT AND ORGANIZATION REVIEW, Issue 2 2005Doug Guthrie abstract Over the two and a half decades of economic reform in China, two types of Chinese firms have consistently outperformed their peers. In the 1980s, it was the firms at the lower levels of the industrial hierarchy, the township and village enterprises that were closely monitored by local governments. In the 1990s and beyond, the top performers have been those Chinese firms that have formal relationships with foreign investors. While many studies on the economic reforms in China have focused on the hardening of budget constraints and the transfer of technology from foreign to Chinese firms, I focus here on the stability created by relationships with local government offices and with powerful foreign investors. Where advocates of shock therapy have argued that a rapid transition to market institutions was the best path to building a market economy, I argue that the successful practices of the market are learned gradually over time, and the Chinese firms that are stabilized by attention from local government offices and relationships with foreign investors are well-positioned to successfully navigate China's emerging markets. A quantitative analysis of 81 firms in industrial Shanghai and three case studies help illuminate the mechanisms behind these relationships. [source] Are Imports and Exports Cointegrated?METROECONOMICA, Issue 1 2004An International Comparison ABSTRACT In this paper we use the Johansen and Juselius cointegration technique to examine the long-run convergence between imports and exports for a number of industrialized countries. The results indicate that there exists a long-run steady-state relationship between imports and exports for most countries in the sample. The policy implications of our findings are that the countries are not in violation of their international budget constraints and, more importantly, there is no productivity gap between the domestic economy and the rest of the world, implying a lack of permanent technological shocks to the domestic economy. [source] Strategic Human Resource Practices: Introducing Alternatives for Organizational Performance Improvement in the Public SectorPUBLIC ADMINISTRATION REVIEW, Issue 1 2010Jungin Kim Can public sector organizations increase productivity through competition in spite of inherent limitations, such as budget constraints? This study addresses that question by examining the impact of four factors that contribute to employees' expectations regarding competitive work environments on organizational performance in terms of overall quality of work and client satisfaction. The four factors measured include rewards for merit such as salary and benefits, opportunities, organizational rules, and the capacity to deal with risks as perceived by employees. Using data on public and nonprofit sector employees, expectations for merit rewards were positively related to employees' perception of organizational performance when the conditions of performance-based organizational rules and risk-taking behaviors were also satisfied. Moreover, employees' perceptions of organizational performance tended to increase when they felt that organizational rules were oriented toward performance plus organizational members and top leaders exhibited greater risk-taking behaviors. However, no correlation was evident between employees' expectations of opportunities and perceived organizational performance. [source] THE FISCAL THEORY OF THE PRICE LEVEL: A CRITIQUE*THE ECONOMIC JOURNAL, Issue 481 2002Willem H. Buiter This paper argues that the `fiscal theory of the price level' (FTPL) has feet of clay. The source of the problem is a fundamental economic misspecification. The FTPL confuses two key building blocks of a model of a market economy: budget constraints, which must be satisfied identically, and market clearing or equilibrium conditions. The FTPL asssumes that the government's intertemporal budget constraint needs to be satisfied only in equilibrium. This economic misspecification has far-reaching implications for the mathematical properties of the equilibria supported by models that impose the structure of the FTPL. It produces a rash of contradictions and anomalies. [source] Debt financing, soft budget constraints, and government ownership Evidence from China1THE ECONOMICS OF TRANSITION, Issue 3 2007Lihui Tian G32; G34; P34 Abstract Debt financing is expected to improve the quality of corporate governance, but we find, using a large sample of public listed companies (PLCs) from China, that an increase in bank loans increases the size of managerial perks and free cash flows and decreases corporate efficiency. We find that bank lending facilitates managerial exploitation of corporate wealth in government-controlled firms, but constrains managerial agency costs in firms controlled by private owners. We argue that the failure of corporate governance may derive from the shared government ownership of lenders and borrowers, which nurtures soft budget constraints. [source] The Limits of Discipline: Ownership and Hard Budget Constraints in the Transition EconomiesTHE ECONOMICS OF TRANSITION, Issue 3 2000Roman Frydman The existing literature on soft budget constraints suggests that firms may be subsidized for political reasons or because of the creditors' desire to recover a part of the sunk cost invested in an earlier period. In all these models hard budget constraints are viewed as being, in principle, capable of inducing the necessary restructuring behaviour on the level of the firm. This paper argues that the imposition of financial discipline is not sufficient to remedy ownership and governance-related deficiencies of corporate performance. Using evidence from the post-communist transition economies, the paper shows that a policy of hard budget constraints cannot induce successful revenue restructuring, which requires entrepreneurial incentives inherent in certain ownership types (most notably, outside investors). The paper also shows that the policy of hard budget constraints falters when state firms, because of inferior revenue performance and less willingness to meet payment obligations, continue to pose a higher credit risk than privatized firms. The brunt of state firms' lower creditworthiness falls on state creditors. But the ,softness' of these creditors, while harmful in many ways, is not necessarily irrational, if it prevents the demise of firms that are in principle capable of successful restructuring through ownership changes. [source] Give Macroeconomic Stability and Growth in Russia a ChanceTHE ECONOMICS OF TRANSITION, Issue 2 2000Brian Pinto This paper identifies and investigates conceptual and empirical links among Russia's disappointing growth performance of the mid-1990s, its costly and eventually unsuccessful stabilization, the macroeconomic meltdown of 1998 and the spectacular rise of non-payments. Non-payments developed into a system that flourished in an atmosphere of fundamental inconsistency between a macroeconomic policy geared at sharp disinflation and a microeconomic policy of bailing-out enterprises through soft budget constraints. It embodies a large volume of untargeted, implicit subsidies in the order of 7,10 per cent of GDP, which has stifled growth, contributed to the 1998 meltdown through its impact on public debt and made at best a questionable contribution to equity. The overwhelming priority at this point is to dismantle this system, thereby promoting enterprise restructuring and growth (by hardening budget constraints) and medium-term macroeconomic stability (by reducing the size of the subsidies). [source] | |||||||||||||||||||||||||||||||