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Institutions and Soft Budget ConstraintsMario BergaraUniversidad de la Republica (University of Uruguay) - Department of Economics Jorge PonceCentral Bank of Uruguay Leandro ZipitriaUniversidad de Montevideo June 6, 2011 International Review of Accounting, Banking and Finance, 2011 Summer, vol. 3(2): 41-66 Abstract: This paper presents a model of soft budget constraints (SBC) in a bank lending relationship, emphasizing the role of institutions in shaping the SBC phenomena. The model allows two types of SBC to emerge according to specific constellations of parameters: the SBC as a dynamic commitment problem and the SBC as an external assistance problem. The paper sheds light on issues such as the political intervention in private contracts, the design of bankruptcy procedures, the cross-subsidization among social groups through the credit system, and the privately-owned versus State-owned bank dichotomy.
Number of Pages in PDF File: 26 Keywords: Institutions, Soft Budget Constraints, Bank Lending, State-owned Banks, Bankruptcy Procedures JEL Classification: D21, D23, D72, G21, G33, L14 Accepted Paper SeriesDate posted: June 6, 2012 ; Last revised: July 2, 2012Suggested CitationContact Information
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