Institutions and Soft Budget Constraints

International Review of Accounting, Banking and Finance, 2011 Summer, vol. 3(2): 41-66

26 Pages Posted: 6 Jun 2012 Last revised: 2 Jul 2012

See all articles by Mario Bergara

Mario Bergara

Universidad de la Republica (University of Uruguay) - Department of Economics

Jorge Ponce

Central Bank of Uruguay

Leandro Zipitria

dECON - FCS - UdelaR

Date Written: June 6, 2011

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.

Keywords: Institutions, Soft Budget Constraints, Bank Lending, State-owned Banks, Bankruptcy Procedures

JEL Classification: D21, D23, D72, G21, G33, L14

Suggested Citation

Bergara, Mario and Ponce, Jorge and Zipitria, Leandro, Institutions and Soft Budget Constraints (June 6, 2011). International Review of Accounting, Banking and Finance, 2011 Summer, vol. 3(2): 41-66 . Available at SSRN: https://ssrn.com/abstract=2079010

Mario Bergara

Universidad de la Republica (University of Uruguay) - Department of Economics ( email )

Jose E. Rodo 1854
CP 11200 Montevideo, 11200
Uruguay

Jorge Ponce

Central Bank of Uruguay ( email )

Diagonal Fabini 777
Montevideo, CP 11100
Uruguay

Leandro Zipitria (Contact Author)

dECON - FCS - UdelaR ( email )

Constituyente 1502
Montevideo, CP 11620
Uruguay

Register to save articles to
your library

Register

Paper statistics

Downloads
40
Abstract Views
912
PlumX Metrics