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A Theory of Social Finance

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  • Simon Cornée

    (Univ Rennes, CREM, CNRS, UMR 6211, F-35000 Rennes, France, and CERMi)

  • Marc Jegers

    (Vrije Universiteit Brussel (VUB), Department of Applied Economics, Belgium)

  • Ariane Szafarz

    (Université Libre de Bruxelles (ULB), SBS-EM, CEB, and CERMi, Belgium)

Abstract

Myriad different types of institutions are involved in social finance. This paper attempts to make sense of the diverse ways of operationalizing the delivery of funds by social financial institutions (SFIs). It explores the continuum of feasible SFIs, which range from foundations offering pure grants to social banks supplying soft loans. The in-between category includes “quasi-foundations” granting loans that require partial repayment only. In our model, the SFIs face information asymmetries and trade off costly social screening against social contributions, under the budget constraint that depends on the generosity of their funders. We characterize the SFIs’ optimal strategy and suggest that quasi-foundations can be efficient vehicles for social finance, especially when social screening costs are relatively low.

Suggested Citation

  • Simon Cornée & Marc Jegers & Ariane Szafarz, 2018. "A Theory of Social Finance," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2018-02, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  • Handle: RePEc:tut:cremwp:2018-02
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    References listed on IDEAS

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    More about this item

    Keywords

    Social Finance; Philanthropy; Foundations; Social Banks;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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