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Subsidization Policy on the Social Enterprise for the Underprivileged

Cho, Sumi and Lee, Sang-Ho (2017): Subsidization Policy on the Social Enterprise for the Underprivileged. Published in: The Korean Economic Review , Vol. 1, No. 33 (1 June 2017): pp. 153-178.

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Abstract

We formulate an oligopoly model in which social enterprise for the underprivileged competes with private enterprises under government subsidization, and examine the market role of private leadership. We show that Stackelberg private leadership is better from the viewpoint of total social welfare, while Cournot followership is better when the social provisions for the underprivileged are emphasized. We also find that both cost inefficiency and the number of private enterprises affect the profitability and welfare consequences. We then investigate the rationing policy on the production of social enterprise and show that output rationing is superior to market share rationing not only for the social concerns of the underprivileged but also for total social welfare, even though it is less attractive than subsidy policy. Finally, we find that there is a strategic over-incentive to pursue social activities under government subsidization.

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