The Korean Journal of Economic Studies
Theoretical and Empirical Analysis on the Effects of ‘Social Progress Credit Program’ on Participating Social Enterprises
Hyunwoo Hong (Institute of Economic Research, Seoul National University) and Biung-Ghi Ju (Seoul National University)Year 2021Vol. 69No. 3
The purpose of subsidizing social enterprises is to help supporting innovative social enterprises and their growth through providing incentives of their social impacts. However, to function as an effective incentive scheme, the subsidy allocation must be designed to reward social impact performances properly. This study uses data from the “Social Progress Credit Program” in the private sector to theoretically and statistically analyze the effect of the subsidy program on the performances of social enterprises, in particular, their social impacts. The program is designed to measure social impact in monetary units and provide monetary incentives in proportion. If participating firms maximize theirperformances expressed as weighted averages of profit and social impact, the program will provide firms incentives to increase their social impacts and more support is provided to firms that generate social impact more efficiently. It also provides incentives for firms to increase their social impact in each period, being designed to provide proportional support for the growth in their social impacts over a three-year period. Empirical analysis shows that the subsidy program incentivized the firms to increase their social impacts and their social impacts increased year by year, which is consistent with our theoretical results.