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Article: Innovation and Bureaucracy under Soft and Hard Budget Constraints
Title | Innovation and Bureaucracy under Soft and Hard Budget Constraints |
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Authors | |
Issue Date | 1998 |
Publisher | Blackwell 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? |
Abstract | Because 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 Identifier | http://hdl.handle.net/10722/138714 |
ISSN | 2023 Impact Factor: 5.9 2023 SCImago Journal Rankings: 13.609 |
ISI Accession Number ID | |
References |
DC Field | Value | Language |
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dc.contributor.author | Qian, Y | en_HK |
dc.contributor.author | Xu, C | en_HK |
dc.date.accessioned | 2011-09-08T08:13:09Z | - |
dc.date.available | 2011-09-08T08:13:09Z | - |
dc.date.issued | 1998 | en_HK |
dc.identifier.citation | Review Of Economic Studies, 1998, v. 65 n. 1, p. 151-164 | en_HK |
dc.identifier.issn | 0034-6527 | en_HK |
dc.identifier.uri | http://hdl.handle.net/10722/138714 | - |
dc.description.abstract | Because 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.language | eng | en_US |
dc.publisher | Blackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/ROES | en_HK |
dc.relation.ispartof | Review of Economic Studies | en_HK |
dc.rights | The definitive version is available at www.blackwell-synergy.com | - |
dc.title | Innovation and Bureaucracy under Soft and Hard Budget Constraints | en_HK |
dc.type | Article | en_HK |
dc.identifier.email | Xu, C: cgxu@hku.hk | en_HK |
dc.identifier.authority | Xu, C=rp01118 | en_HK |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1111/1467-937X.00039 | - |
dc.identifier.scopus | eid_2-s2.0-0003012475 | en_HK |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-0003012475&selection=ref&src=s&origin=recordpage | en_HK |
dc.identifier.volume | 65 | en_HK |
dc.identifier.issue | 1 | en_HK |
dc.identifier.spage | 151 | en_HK |
dc.identifier.epage | 164 | en_HK |
dc.identifier.isi | WOS:000071889900007 | - |
dc.publisher.place | United Kingdom | en_HK |
dc.identifier.scopusauthorid | Qian, Y=7402872494 | en_HK |
dc.identifier.scopusauthorid | Xu, C=23020300700 | en_HK |
dc.identifier.issnl | 0034-6527 | - |