Private action in public interest: The comparative governance of social issues

Abstract

Research Summary We develop a theoretical framework to define the comparatively efficient organizational form for dealing with a social issue, based on the market frictions associated with it. Specifically, we argue that for‐profits have an advantage in undertaking innovation and coordinating production economies, nonprofits in playing a fiduciary role given ex post information asymmetry, self‐governing collectives in dealing with bounded externalities through private ordering, and state bureaucracies in governing general externalities. We build on these arguments to develop a mapping between combinations of these market frictions and the comparatively efficient arrangements to govern them, including a variety of hybrid arrangements such as private‐public partnerships, social enterprises, corporate social responsibility, and so on. Our framework thus contributes to research in strategy, organizations, and public policy. Managerial Summary What is the best way to deal with a social problem? While some believe such problems are best left to the state, others argue that business should take the lead in solving them, or favor nonprofit solutions. In this article, we move beyond such one‐size‐fits‐all approaches, highlighting the different strengths of different organizational forms. We argue that for‐profits' strong incentives make them more innovative; nonprofits are more trustworthy in representing the best interests of others; collectives enable actors to self‐organize around a common interest; and the state is best for issues that impact the entire population. We thus develop a mapping between the nature of the social problem and the organizational form—or combination of organizational forms—that may deal with it most efficiently.

Categorical cognition and outcome efficiency in impact investing decisions

“…A growing area of strategy research investigates how market‐based organizations might not only create private financial value, but also advance broader social welfare goals (Barney, ; Dorobantu & Odziemkowska, ; Freeman, Wicks, & Parmar, ; Luo & Kaul, ). Essential to this work is the concept of “hybrid” organizations that explicitly pursue both financial and social goals simultaneously (Battilana, Besharov, & Mitzinneck, ; Fosfuri, Giarratana, & Roca, ).…”

Institutional entry barriers and spatial technology diffusion: Evidence from the broadband industry

“…There is also a related and rising literature about the form of competition between public/nonprivate or nonprofit firms with private firms (Chatterji et al, 2015; Luo & Kaul, 2019; Mahoney et al, 2009). This literature does not consider either the roles of institutional environment or firm heterogeneity.…”

“…The current study builds on new institutional economics (Dorobantu, Kaul, & Zelner, 2017; North, 1990; Williamson, 2000) and the technology diffusion literature (Caselli & Coleman, 2001; Comin & Hobijn, 2010; Galang, 2012) to examine the causal effects of local institutional entry barriers to nonprivate firms (Chatterji, Luo, & Seamans, 2015; Luo & Kaul, 2019; Mahoney, McGahan, & Pitelis, 2009; Seamans, 2012) on incumbents' technology adoption. We theorize about firms' strategic responses and isolate the specific mechanisms through which similar local institutions generate divergent diffusion processes (D'Aunno, Succi, & Alexander, 2000; Dorobantu et al, 2017; Peng, Sun, Pinkham, & Chen, 2009; Scott, 2013) while interacting with local market conditions (Porter, 1991, 1994) and firm heterogeneity (Barney, 1991).…”

“…Our study differs from previous studies by showing that local institutions that formally disadvantage firms with alternative organizational forms and indirectly benefit private firms reduce technology diffusion. Thus, we contribute to the literature about competition between private and nonprivate firms (Chatterji et al, 2015; Luo & Kaul, 2019; Seamans, 2012) in a context where institutional environment is local and creates asymmetric benefits to private incumbents by increasing the entry cost for nonprivate potential entrants.…”

“…The new institutional economics approach also allows us to investigate the social implications of organizational responses to the local institutional forces (Delmas, Russo, & Montes‐Sancho, 2007; Dorobantu et al, 2017; Luo & Kaul, 2019; North, 1990). Studies on economics and technology diffusion focus on the industry level (Winston, 1998) or do not consider firms' resources and capabilities (Aghion et al, 2009; Wilson, 2016) as determinants of technology diffusion outcomes.…”