In Medio Stat Virtus: Does a Mixed Economy Increase Welfare?

Abstract

Over the past few decades, social enterprises have grown remarkably. This paper investigates how social enterprises affect access to social services (e.g., education and health-care) and utilitarian welfare. To this end, two economic systems are compared: a market economy system, where all firms are profit maximizers, and a mixed economy system, where both for-profit businesses and social enterprises are present. Findings show that individuals are more likely to have access to social services within mixed economy. Moreover, conditions are derived under which utilitarian welfare is larger within mixed economy. Public policies in support of social enterprises (e.g., subsidies) are shown to result in the following trade-off: access to social services is further enhanced but utilitarian welfare is more likely to be lower than that within market economy.

Strong client orientation, little leverage in nonprofit firms?

“…Hediger (2010) models corporate social responsibility (CSR) as a trade-off between companies' financial contribution to shareholders and their contribution to social welfare at large. 4 Brekke et al (2012) consider nonprofit firms which care about both profits and consumer welfare, whereas in Fedele and Depedri (2016), nonprofit firms are assumed to maximize consumer welfare subject to a break-even constraint. Herr (2011) focuses on public hospitals, which maximize their own profits plus a fraction of their market share in order to increase patients' welfare.…”