The Organization of Social Enterprise

53 Pages Posted: 27 Jul 2018 Last revised: 5 Feb 2025

See all articles by Ofer Eldar

Ofer Eldar

University of California, Berkeley - School of Law; European Corporate Governance Institute (ECGI); Halle Institute for Economic Research

Date Written: June 09, 2024

Abstract

Nonprofit theory falls short in accounting for the information asymmetries relating to beneficiaries' abilities and needs. This paper introduces a model where entrepreneurs receiving donations choose (1) the for-profit or nonprofit form, and (2) giving to the beneficiaries (e.g., training programs) or forming social enterprises that transact with them (e.g., work-integration). When beneficiaries' abilities greatly vary, entrepreneurs form social enterprises to measure abilities and tailor higher-quality disbursals to their needs. High variance in abilities and entrepreneurs' strong preference for quality lead firms to solely transact with beneficiaries, equalizing the quality of philanthropy between for-profits and nonprofits. However, when entrepreneurs engage in some giving, nonprofits provide higher-quality philanthropy but at lower scale than for-profits. Without tax incentives, entrepreneurs opt for for-profits even when nonprofits provide higher quality philanthropy. Tax deductions, if too large, might lower quality by promoting ineffective giving. Policies that enable entrepreneurs to credibly commit to transacting increase quality.

Keywords: organizations, nonprofits, measurement, theory of the firm, corporate social responsibility, social enterprise

JEL Classification: L3, K1, H2

Suggested Citation

Eldar, Ofer, The Organization of Social Enterprise (June 09, 2024). European Corporate Governance Institute – Finance Working Paper No. 987/2024 , Available at SSRN: https://ssrn.com/abstract=3217663 or http://dx.doi.org/10.2139/ssrn.3217663

Ofer Eldar (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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