When social benefits cannot be measured, a hybrid organization which selects managers based on motivation can be used to balance profits with a social purpose. This paper develops a model of social enterprise based on selection of citizen-managers with this goal in mind. It develops the implications of matching between founders and managers based on their preferences for the mission. The main trade-offs suggested by the theory are tested experimentally and these are used to calibrate a matching outcome. This makes precise the parameter range in which social enterprises based on selection will be observed in a market setting; we show that they achieve gains in efficiency of around 10% over non-profit enterprise. (with T. Besley)

To read the paper click here.