The soft budget constraint syndrome, first identified and studied by Janos Kornai, arises when a seemingly unprofitable enterprise is bailed out by the government or the enterprise's creditors. In other words, the enterprise is not held to a fixed budget, but finds its budget constraint...

This paper surveys the theoretical literature on the effect of soft budget constraints on economies in transition from centralization to capitalism; it also reviews our understanding of soft budget constraints in general. It focuses on the conception of the soft budget constraint syndrome as a...