Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society

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Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society

Social Value from Social Enterprise: An Incentive Design

Vol.32, No.2, June , 54–73

  •   (Korea Advanced Institute of Science and Technology (KAIST))

  •   (Korea Advanced Institute of Science and Technology (KAIST))


We build a model of social enterprise that shows how social planners incentivize for-profit firms to pursue social welfare maximization. In our model, there is a social planner who provides an incentive program for an entrant firm to be a social enterprise. The amount of subsidy given to the social enterprise is proportional to the difference of a reference price and the price set by the entrant. The entrant firm decides whether to participate in the incentive program and maximize social welfare or to compete with an incumbent firm without any subsidy from the social planner. Several results emerge from our analysis. First, we identify conditions under which the entrant firm has an incentive to maximize social welfare by receiving the subsidy. The degree of such an incentive increases as the market size increases or the incumbent sells a low quality product. If the incentive program has the incumbent's monopolistic price as the reference price, it is more efficient than if the program has a competitive price as the reference price.

   Incentive Design, Social Enterprise, Social Welfare, Sustainable Development, Business Strategy

JEL classification codes
   A13, L31, P31

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