ABSTRACT
In the original analysis of the SBC, paternalism is the key determinant; the preferences of a paternalistic state are to bail out chronic loss-makers (Komai 1980,1992a). As the literature on the SBC has grown, so have the explanations for the SBC. Economic, political and institutional reasons have been given to explain the emergence (and persistence) of the SBC (Shleifer and Vishny 1994; Dewatripont and Maskin 1995; Skoog 2000). In this chapter, the interpretation of the SBC syndrome is similar to Komai’s definition, namely, the financial indiscipline of firms and, in particular, the recurring expectation of a bailout or refinancing of loss-making enterprises or organisations. Loss-making enterprises or organisations get bailed out, ex post, and more often than not, it is the state that is the source of the budget softness.
