Soft Budget Constraints and the Property Rights Theory of Ownership

Journal Articles
econ letters cover

Modeling the government make-or-buy decision, Hart and colleagues [Hart, O., Shleifer, S. and Vishny, R.W., 1997, "The proper scope of government: Theory and an application to prisons", Quarterly Journal of Economics 112, 1127–1161] assume government providers are exogenously more replaceable than private providers. Instead, we posit government managers' soft incentives arise endogenously from their lack of control rights, because of rationally softer budget constraints.

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