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Article: Innovation and Bureaucracy under Soft and Hard Budget Constraints

TitleInnovation and Bureaucracy under Soft and Hard Budget Constraints
Authors
Issue Date1998
PublisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/ROES
Citation
Review Of Economic Studies, 1998, v. 65 n. 1, p. 151-164 How to Cite?
AbstractBecause of the inherent uncertainty, promotion of innovation critically depends on screening mechanisms to select projects. This paper studies the relationship between bureaucracy and financial constraints as two such mechanisms. The lack of commitment to hard financial constraints interferes with its ex post screening capability; ex ante bureaucratic screening is optimally chosen as a substitute. However, bureaucracy makes mistakes by rejecting promising projects and delays innovation, and the efficiency loss due to soft financial constraints increases as prior knowledge becomes worse and as research stage investment requirements become lower. In a centralized economy, bureaucracy may reduce the number of parallel projects, particularly for projects with higher uncertainties and less research stage requirements. This theory fits much of the evidence and in particular it explains why the computer industry, but not the nuclear or aerospace industries, has fared so poorly in centralized economies.
Persistent Identifierhttp://hdl.handle.net/10722/138714
ISSN
2015 Impact Factor: 4.077
2015 SCImago Journal Rankings: 9.250
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorQian, Yen_HK
dc.contributor.authorXu, Cen_HK
dc.date.accessioned2011-09-08T08:13:09Z-
dc.date.available2011-09-08T08:13:09Z-
dc.date.issued1998en_HK
dc.identifier.citationReview Of Economic Studies, 1998, v. 65 n. 1, p. 151-164en_HK
dc.identifier.issn0034-6527en_HK
dc.identifier.urihttp://hdl.handle.net/10722/138714-
dc.description.abstractBecause of the inherent uncertainty, promotion of innovation critically depends on screening mechanisms to select projects. This paper studies the relationship between bureaucracy and financial constraints as two such mechanisms. The lack of commitment to hard financial constraints interferes with its ex post screening capability; ex ante bureaucratic screening is optimally chosen as a substitute. However, bureaucracy makes mistakes by rejecting promising projects and delays innovation, and the efficiency loss due to soft financial constraints increases as prior knowledge becomes worse and as research stage investment requirements become lower. In a centralized economy, bureaucracy may reduce the number of parallel projects, particularly for projects with higher uncertainties and less research stage requirements. This theory fits much of the evidence and in particular it explains why the computer industry, but not the nuclear or aerospace industries, has fared so poorly in centralized economies.en_HK
dc.languageengen_US
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/ROESen_HK
dc.relation.ispartofReview of Economic Studiesen_HK
dc.rightsThe definitive version is available at www.blackwell-synergy.com-
dc.titleInnovation and Bureaucracy under Soft and Hard Budget Constraintsen_HK
dc.typeArticleen_HK
dc.identifier.emailXu, C: cgxu@hku.hken_HK
dc.identifier.authorityXu, C=rp01118en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1111/1467-937X.00039-
dc.identifier.scopuseid_2-s2.0-0003012475en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-0003012475&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume65en_HK
dc.identifier.issue1en_HK
dc.identifier.spage151en_HK
dc.identifier.epage164en_HK
dc.identifier.isiWOS:000071889900007-
dc.publisher.placeUnited Kingdomen_HK
dc.identifier.scopusauthoridQian, Y=7402872494en_HK
dc.identifier.scopusauthoridXu, C=23020300700en_HK

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