Policy Burdens and Long-run Soft Budget Constraint
Gong Qiang and Xu Zhaoyang(China Center for Economic Research, Peking University)
The traditional theories about SBC implicitly assume that the lender and debtor play the game only once. When we relax this assumption and consider the long-run relationship between the lender and debtor, SBC and moral hazard problem will be greatly alleviated. In this paper, we originate the concept of long-run SBC and construct a more general framework in which both traditional SBC and long-run SBC can be incorporated. Under the general framework, we discuss the effect of policy burdens on SBC, and demonstrate the trade-off between them. The reason that the SBC problem is severer in less developed country than in developed countries might be attributed to more policy burdens.
【CateGory Index】： F275