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Impact Investment and Non-financial Incentives

Author

Listed:
  • Sara Biancini
  • David Ettinger

Abstract

We consider a framework in which both a principal and an agent care about a social mission, such as addressing social or environmental concerns. The agent requires financing and must satisfy a budget constraint. Under incomplete information, in addition to the usual quantity distortions for inefficient agents, the principal also distorts the mission upward for efficient agents and downward for inefficient ones. In our context, the existence of hidden types may improve total welfare compared to complete information, as screening incentivizes the principal to propose a contract with a higher mission to reduce the rent of more efficient types. Our results apply to social enterprises and triple bottom line environments, contributing to the theoretical understanding of the impact of non-financial incentives on optimal contracting.

Suggested Citation

  • Sara Biancini & David Ettinger, 2025. "Impact Investment and Non-financial Incentives," CESifo Working Paper Series 11923, CESifo.
    • Handle: RePEc:ces:ceswps:_11923
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp11923.pdf
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    More about this item

    Keywords

    impact investment; mission motivation; incentives; social enterprises; corporate social responsibility;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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