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Serving the many or serving the most needy?

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  • Christoph Starke

Abstract

Free, subsidized, or cost-covering? The decision on how much to charge for a good or service is fundamental in social business planning. The higher the fee paid by the recipient, the more people in need can be served by the additional revenues. However, charging a fee simultaneously excludes the very poor from consumption. This paper argues that the entrepreneur’s trade-off between both effects is governed by her level of poverty aversion, i.e., her preference intensity for the service of needy people with different incomes. Additionally, we account for the possibility of excess demand for the provided good and assume that applicants are rationed by non-price-allocation mechanisms. We therefore contribute to the extensive literature on the pricing and rationing behavior of nonprofit firms. Within our theoretical model, we find ambiguous reactions of the entrepreneur to a cut in donations. Given a sufficiently low level of status-quo donations, entrepreneurs with relatively high poverty aversion tend to increase the project volume, whereas those with relatively low poverty aversion do the opposite. Copyright Springer-Verlag Berlin Heidelberg 2012

Suggested Citation

  • Christoph Starke, 2012. "Serving the many or serving the most needy?," Economics of Governance, Springer, vol. 13(4), pages 365-386, December.
    • Handle: RePEc:spr:ecogov:v:13:y:2012:i:4:p:365-386
    DOI: 10.1007/s10101-012-0116-8
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    References listed on IDEAS

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    Cited by:

    1. Siebold, Nicole, 2021. "Reference points for business model innovation in social purpose organizations: A stakeholder perspective," Journal of Business Research, Elsevier, vol. 125(C), pages 710-719.
    2. Christoph Starke & Steffen Burchhardt, 2014. "Revealing the Preferences of Social Financiers," FEMM Working Papers 140002, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    3. Dohrmann Susanne & Raith Matthias & Siebold Nicole, 2015. "Monetizing Social Value Creation – A Business Model Approach," Entrepreneurship Research Journal, De Gruyter, vol. 5(2), pages 127-154, April.

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