OUTPUT TARGETS, THE SOFT BUDGET CONSTRAINT AND THE FIRM UNDER CENTRAL PLANNING

The paper considers the case of an expected profit maximizing firm which has an output target imposed on it by central planners and which may receive (partial) bailouts if its operating profit is negative. The model contains several sources of uncertainty. The paper compares the amounts of input use in the pure bailout case, the pure output target case, the bailout-with-output-target-case and the standard competitive case both theoretically and with numerical experiments. © 1990.