This paper analyzes financial dual track in China. We show that the co-existence of a soft-budget track (under centralized financing) and a hard-budget track (under decentralized financing) can be strictly more efficient than the two pure cases. Our argument is as follows. First, a hard budget...

I put forward a new theoretical framework to analyze the relationship between soft budget constraint syndrome and the economic performances of firms. It differs from the existing theoretical framework, a la Dewatripont and Maskin (1995), in the soft budget constraint literature. In this paper,...