This is a story of the soft budget constraint. It seeks an answer to a paradox: the prevalence of the soft budget constraint in spite of the tremendous inefficiencies that it gives rise to, and its persistence in spite of reform of the system of which it is an integral part. The story aims at increasing our understanding of why the phenomenon exists. By studying the case of state-owned enterprises in Tanzania before, during and after socialism, an explanation of the emergence, persistence and logic of the soft budget constraint is suggested. This introductory chapter presents an argument showing why this story is worth telling. It discusses the research topic and how the problem it presents is attacked.


Gross Domestic Product Socialist Economy Empirical Examination Informal Institution Public Enterprise 


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  1. 1.
    See Kornai (1979), (1980) and (1986c), whose idea of various aspects of the concept is discussed in more detail in Chapter II.Google Scholar
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    The works of Fukuyama (1995) and Putnam (1993) represent the increased recognition of the role of culture for economic performance and the functioning of formal rules.Google Scholar

Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  • Gun Eriksson Skoog
    • 1
  1. 1.Stockholm School of Economics — EFI The Economic Research InstituteSweden

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