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This paper examines the prices of basic staples in rural Mexico. We document that nonlinear pricing in the form of quantity discounts is common, that quantity discounts are sizable for basic staples, and that the well-known conditional cash transfer program Progresa has significantly increased quantity discounts, although the program, as documented in previous studies, has not affected unit prices on average. To account for these patterns, we propose a model of price discrimination that nests those of Maskin and Riley (1984) and Jullien (2000), in which consumers differ in their tastes and, because of subsistence constraints, in their ability to pay for a good. We show that under mild conditions, a model in which consumers face heterogeneous subsistence or budget constraints is equivalent to one in which consumers have access to heterogeneous outside options. We rely on known results to characterize the equilibrium price schedule, which is nonlinear in quantity. We analyze the effect of nonlinear pricing on market participation as well as the impact of a market-wide transfer, analogous to the Progresa one, when consumers are differentially constrained. We show that the model is structurally identified from data on prices and quantities from a single market under common assumptions. We estimate the model using data on three commonly consumed commodities from municipalities and localities in Mexico. Interestingly, we find that relative to linear pricing, nonlinear pricing is beneficial to a large number of households, including those consuming small quantities, mostly because of the higher degree of market participation that nonlinear pricing induces. We also show that the Progresa transfer has affected the slopes of the price schedules of the three commodities we study, which have become steeper as consistent with our model, leading to an increase in the intensity of price discrimination. Finally, we find that a reduced form of our model, in which the size of quantity discounts depends on the hazard rate of the distribution of quantities purchased in a village, accounts for the shift in price schedules induced by the program.

Technological innovations are heterogeneous in nature; some are pioneering while others are not. Drawing on a series of theoretical studies, this paper offers empirical evidence on the differential effects of soft budget constraints on non-pioneering and pioneering innovations by using provincial-level data from China spanning from 2003 to 2015. Using a panel threshold model framework, we observe that soft budget constraints stimulate non-pioneering innovations but hinder pioneering innovations, with the hindering effects outweighing the stimulating effects. These findings underscore the importance of overcoming institutional path dependence and hardening budget constraints to foster the dynamic evolution of innovation modes.

The term \"soft budget constraint\" (SBC), regularly employed in the literature on economic transition from socialism to capitalism, is considered and clarified, and the formal theoretical literature on SBC is surveyed. A useful conceptual apparatus for integrating research programs is laid out, one that is acceptable for those involved in studying and formulating policy for postsocialist economies as well as for the many theorists who have attempted a formal approach to modeling the SBC phenomenon. The SBC phenomenon is compared with other important issues of dynamic commitment in economic theory, and outstanding challenges for the SBC research program are considered. [PUBLICATION ABSTRACT]

A major challenge faced by marketers attempting to optimize their advertising campaigns is to deal with budget constraints. The problem is even harder in the face of multidimensional budget constraints, particularly in the presence of many decision variables involved and the interplay among the decision variables through such constraints. Concise bidding strategies help advertisers deal with this challenge by introducing fewer variables upon which to act. In this paper, we study the problem of finding optimal concise bidding strategies for advertising campaigns with multiple budget constraints. Given bid landscapes—that is, the predicted value (e.g., number of clicks) and the cost per click for any bid—that are typically provided by ad-serving systems, we optimize the value of an advertising campaign given its budget constraints. In particular, we consider bidding strategies that consist of no more than k different bids for all keywords. For constant k , we provide a polynomial-time approximation scheme to optimize the profit, whereas for arbitrary k we show how a constant-factor approximation algorithm can be obtained via a combination of solution enumeration and dependent LP rounding techniques, which can be of independent interest. In addition to being able to deal with multidimensional budget constraints, our results do not assume any specific payment scheme and can be applied on pay-per-click, pay-per-impression, or pay-per-conversion models. Also, no assumption about the concavity of value or cost functions is made. Finally, we evaluate the performance of our algorithms on real data sets in regimes with up to six-dimensional budget constraints. In the case of a single budget constraint, in which uniform bidding (currently used in practice) has a provable performance guarantee, our algorithm beats the state of the art by an increase of 1%–6% in the expected number of clicks. This is achieved by only two or three clusters in contrast with the single cluster permitted in uniform bidding. With multiple budget constraints, the gap between the performance of our algorithm and an enhanced version of uniform bidding grows to an average of 5%–6% (and as high as 35% in higher dimensions). This paper was accepted by Yinyu Ye, optimization.

Both aristocratic privileges and constitutional constraints in traditional monarchies can be derived from a ruler's incentive to minimize expected costs of moral-hazard rents for high officials. We consider a dynamic moral-hazard model of governors serving a sovereign prince, who must deter them from rebellion and hidden corruption which could cause costly crises. To minimize costs, a governor's rewards for good performance should be deferred up to the maximal credit that the prince can be trusted to pay. In the long run, we find that high officials can become an entrenched aristocracy with low turnover and large claims on the ruler. Dismissals for bad performance should be randomized to avoid inciting rebellions, but the prince can profit from reselling vacant offices, and so his decisions to dismiss high officials require institutionalized monitoring. A soft budget constraint that forgives losses for low-credit governors can become efficient when costs of corruption are low.

Considered are imperfectly discriminating contests in which players may possess private information about the primitives of the game, such as the contest technology, valuations of the prize, cost functions, and budget constraints. We find general conditions under which a given contest of incomplete information admits a unique pure-strategy Nash equilibrium. In particular, provided that all players have positive budgets in all states of the world, existence requires only the usual concavity and convexity assumptions. Information structures that satisfy our conditions for uniqueness include independent private valuations, correlated private values, pure common values, and examples of interdependent valuations. The results allow dealing with inactive types, asymmetric equilibria, population uncertainty, and the possibility of resale. It is also shown that any player that is active with positive probability ends up with a positive net rent.

This paper addresses Janos Kornai’s early work on the socialist economy as summarized in his first book, Overcentralization in Economic Administration. In this context, I discuss the parallel research of the 1950s by American scholars, such as Joseph Berliner, David Granick, Gregory Grossman and Eugene Zaleski, who used similar methods and arrived at similar conclusions. Kornai found little evidence of comprehensive planning. Instead, he determined that the planning system consisted of quarterly gross output orders that could readily be manipulated by managers and had to be fulfilled at any price. Kornai’s Overcentralization already contained the seeds of Kornai’s later key findings of the dysfunctionalities of socialist planning; namely, soft budget constraints and the shortage economy. Kornai’s most important finding was largely overlooked throughout the socialist world—that the planned economy could not be reformed by partial measures.

Within the framework of the soft budget constraint problem, this article investigates the impact of a legislative reform that increased regional tax autonomy on the propensity of Spanish regional governments to incur a deficit. For this purpose, a dynamic panel data model is estimated, using data for the period 1984–2019. The sample shows a breakpoint in 2002, when the reform of the regional financing system came into force, providing Spanish regions with greater tax autonomy, more fiscal competency, and lower intergovernmental transfers. Results show that the budget constraint has hardened, as regions have fewer incentives to accumulate budgetary deficits with the expectation of future compensations from the central government. A comprehensive review of the evolution of other factors previously identified as determinants of soft budget constraints, and the analysis of two regions not included in this financing system, suggest no other possible explanation for these results.

This paper examines position auctions with budget-constrained advertisers, a dominant bidding environment used by publishers to allocate positions in online advertising. Budget constraints play a crucial role in equilibrium bidding by inducing advertisers to strategically deplete a higher-ranked advertiser’s budget to gain in rank. This strategic consideration has consequences for the advertisers’ profits and the publisher’s revenue. An advertiser’s profit can strictly decrease with her budget when competition for an advertising space (e.g., a keyword) is intense. The publisher’s revenue can also strictly decrease when an increase in the higher-ranked advertiser’s budget induces the lower-ranked rival to reduce her bid, due to her inability to deplete the higher-ranked advertiser’s budget. Several managerial implications for advertisers and publishers are discussed.

Many scholars attribute China's market reforms and the remarkable economic performance they have fostered in part to the country's political and fiscal decentralization. Political decentralization is said to have stimulated local policy experiments and restrained predatory central interventions. Fiscal decentralization is thought to have motivated local officials to promote development and harden enterprises' budget constraints. The locally diversified structure of the prereform economy is said to have facilitated liberalization. Reexamining these arguments, the authors find that none establishes a convincing link between political or fiscal decentralization and China's successes. They suggest an alternative view of the reform process in which growth-enhancing policies emerged from competition between promarket and conservative factions in Beijing.