Understanding the Function of a Social Business Ecosystem

Abstract

Social entrepreneurs face challenging situations in trying to expand and grow businesses with little investment and limited resources. Interactions and networks between social entrepreneurs, investors, and other stakeholders are indispensable in promoting social entrepreneurship. Together, they come to form a cyclical “social business ecosystem” (SBE), in which social entrepreneurs can finance their projects by paying “share transfer fees.” By using a theoretical/mathematical model in our method, this study examines the fundamental role of share transfer fees in an SBE. In particular, it establishes a moral hazard model that can explain important characteristics of an SBE. As main results, the study identifies conditions under which an SBE can mitigate the moral hazard of social entrepreneurs. The results suggest that SBEs work efficiently for relatively small social projects. This is consistent with actual cases of social business. Within this framework, this study also explores the practical implications of knowledge spillover; social entrepreneurs conduct SBEs more efficiently if they take advantage of knowledge spillover.