Socialist enterprises that are faced with a soft budget constraint have no incentive to become more efficient.

Question

Quizplus · Accepted Answer

A soft budget constraint means that the enterprise can rely on government subsidies or bailouts instead of facing the consequences of its inefficiency. Therefore, there is no pressure to improve or streamline operations, leading to a lack of incentive for efficiency. This is a common criticism of socialist economic systems.

Socialist Enterprises That Are Faced with a Soft Budget Constraint