Soft budget constraint refers to the phenomenon that money losing inefficient projects keep on getting subsidies and operating. It was first phrased and analyzed by the late Hungarian economist Janos Kornai when he studied former socialist economies and by now, economists generally have agreed...

In the absence of constraints on the state based on rule of law, there is a dilemma facing the state: when the state has the incentives to enforce contracts, it also has the incentives for predation. We demonstrate that information available to the state can determine the outcome in such a...

In the hierarchy of China's state sector, both before and during the current reform period, government bureaucrats select and supervise state-owned enterprise (SOE) managers. The incentive problem of SOE managers has been studied carefully, but that of the bureaucrats has not. This paper uses a...

This paper studies the role of agency in the self-enforcement of interfirm contracts. When interfirm transactions are carried out by the agents rather than the owners, the agents' incentive to breach a contract for the benefit of their firm is typically lower than that of the owners if doing so...