Scientific literature on social enterprise is at an impasse. Either social enterprises maximize profits to have a chance of impact investment or they prevent mission drift by avoiding profit maximization along the lines of traditional philanthropy. This article breaks this stalemate by building on the facts that constrain the daily operation of a social enterprise. It is submitted that a social enterprise is a mechanism for value creation that forgoes value capture and engages in value devolution to serve a wider vulnerable clientele. The term value devolution implies giving away market power for consumers' sake.
This article's purpose is to set out the economic rationale that underpins social businesses, engaging in a research agenda's conceptual development on hybrid firm ecosystems. A different form of business is needed to prevent dividend-distributing companies from abusing the market power allowed by barriers that keep competitors away at the expense of the poor. Thus, bottom-up development strategies have limits if solely based on dividenddistributing companies. An alternative is offered by social businesses, but these are difficult to theorise within the constraints of Pareto optimality. In exploring alternatives to the latter, this article posits that, despite shortcomings, there are neoclassical contributions that provide a basis for researching social businesses, which can be understood and modelled as companies maximising worst-off customers' well-being.
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