Which Enterprises (Believe They) Have Soft Budgets after Mass Privatization? Evidence from Mongolia

To ascertain the degree to which enterprises have soft budgets and to find the causes of softness, we surveyed 251 privatized Mongolian enterprises, asking whether state aid was expected when financial difficulties arose. One-quarter of the enterprises face soft budgets, a large proportion of these having central government ownership. We examine causes of soft budgets other than state ownership, but the state variable dominates. These results are robust to the use of either instrumental variables or of bivariate probit to unmask unmeasured selection effects. Local government ownership has a much weaker effect on whether budgets are soft than does central ownership