State-owned enterprises, soft budget constraints and the owner—regulator syndrome

Abstract

We look at the soft budget constraint literature in the context of the state-led restructuring of state-owned enterprises (SOE) in which institutions are both regulators charged with constraining SOE restructuring outcomes and part owners of the SOEs concerned. Such institutional agents constitute a set of what we term “owner—regulators (OR)”. These economic agents may have political problems as regulators — as suggested by the Chicago School approach to economic regulation. They can also have ownership problems — here defined by literature on the theory of the firm and on vertical structure. In this light the incentives associated with the imposition of hard budget constraints may be by themselves insufficient to radically change owner—regulator behaviour. If the implementation of such constraints does not take into account the factors highlighted by this paper, hard budget constraints are likely to be either counterproductive or irrelevant.

How Populism Harms Prosperity: Unified Populist Rule Reduces Investment, Innovation, and Productivity

“…These rms tend to have soft budget constraints, rack up debt, and receive government bailouts (Davis and Keiding 2002). In turn, SOEs face reduced pressures to increase pro ts, and thus have fewer incentives to cut costs and innovate.…”

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“…Research on state-owned enterprises was popular in periods of deregulation in the [1980][1981][1982][1983][1984][1985][1986][1987][1988][1989][1990] in US and EU and recently this research topic has been actively pursued in China (Liu, 2009), taking into account the imminent conflict between the state as an owner and the state as a regulator (Davis & Keiding, 2002). Research has been published on public organizations in multilevel government environments (Talbot, 1996) as well as efforts to shed light on an increasingly opaque and complex regulatory system in EU (Pollitt &Talbot, 2004), (Muñoz, & Petit, 2005), but virtually no research exists on leading a state-owned enterprise in the context of a supranational regulatory and legislative body like the EU.…”