Defining Social Entrepreneurship: Social Entrepreneurship and Externalities, Part 1

I enjoyed sharing the work that I’d done several years ago curating those quotes from various religious scriptures into a number of posts. As a result, it got me thinking of some of the other papers I’ve wrote and whether they’d be appropriate to share here. Since I just finished an MBA, I’ve gone through quite a number of case studies. Since professors tend to reuse those cases, it seems inappropriate to share the papers I wrote for those cases (as some students might try to pass it off as their own work). With that being said, yesterday’s post about fines vs. fees reminded me of a paper I wrote about a year ago for a class in social entrepreneurship. This paper wasn’t for a case, so I thought I’d share it in a number of installments. In today’s post, I’ll share the executive summary and the first section: defining social entrepreneurship.

Executive Summary

This aim of this paper is to answer two main questions: (1) are externalities essential to the understanding of social entrepreneurship? (2) are the economic theories of externalities used in the professional understanding of social entrepreneurship? To answer these questions, the definitions of social entrepreneurship and externalities are explored, along with the different categories of externalities. There is also a short examination of the different solutions to externalities. Following this, an analysis of the intersection of the two concepts (social entrepreneurship and externalities) is conducted, the results of which return answers of “yes” to both of the main questions of this paper.

Defining Social Entrepreneurship

Before moving into a discussion about social entrepreneurship and externalities, it is important to define these terms. As one delves further into the literature – both academic and popular – it quickly becomes clear that there are myriad understandings that cloud the space around these terms[1] and thusly make the task of definition that much more important. To begin, I will define social entrepreneurship, but before that, it might be more appropriate to start with a definition of entrepreneurship.

Most definitions of social entrepreneurship begin with an attempt to define entrepreneurship and logically so, as ‘social’ acts as a modifying word to entrepreneurship. One definition of what it means to be an entrepreneur that I particularly like, “A person is an entrepreneur from t₁ to t₂ if and only if that person attempts, from t₁ to t₂, to make business profits by innovation in the face of risk.”[2] Subsequently, the definition of entrepreneurship follows as, “The process of attempting from t₁ to t₂, to make business profits by innovation in the face of risk.”[3] While there is disagreement among some about how to define entrepreneurship, this basic understanding will suffice for the purposes of this paper.

Now that we have defined entrepreneurship, ‘business profits by innovation in the face of risk,’ we can move on to define social entrepreneurship. Similar to entrepreneurship (and maybe understandably so), social entrepreneurship lacks a consensual definition among those who study it. The Skoll Centre for Social Entrepreneurship at the University of Oxford defines social entrepreneurship as, “[being] about innovative, market-oriented approaches underpinned by a passion for social equity and environmental sustainability.”[4] Others believe that social entrepreneurship is, “ a process that catalyzes social change and/or addresses important social needs in a way that is not dominated by direct financial benefits for the entrepreneurs.”[5] While those definitions are similar, one could identify differences. The first definition includes an approach and the second definition includes a process. Part of the issue surrounding the definition of social entrepreneurship is that, “it means different things to different people.”[6] I may be a bit biased as I’m currently interning with Ashoka, but I think the person [Bill Drayton, founder and CEO of Ashoka] who ‘created’ the term[7] should have a great deal of say in the definition of said term. As such, Ashoka defines social entrepreneurship in following way:[8]

Social entrepreneurs are individuals with innovative solutions to society’s most pressing social problems. They are ambitious and persistent, tackling major social issues and offering new ideas for wide-scale change.

Rather than leaving societal needs to the government or business sectors, social entrepreneurs find what is not working and solve the problem by changing the system, spreading the solution, and persuading entire societies to take new leaps.

One of the important distinctions regarding Ashoka’s definition of social entrepreneurship is that the idea precedes the doing. That is, the social entrepreneur plans to address the problem (or social ill) before s/he begins the venture. This will be important later on when we talk about externalities. Another important distinction here is the specification of ‘changing the system.’ This is key because one of the more recent academic articles published on the topic of social entrepreneurship isolates four main factors of the definitions of social entrepreneurship, none of which are ‘changing the system’. They include: characteristics of individual social entrepreneurs, their sphere of operation, the processes and resources used by social entrepreneurs, and the mission of the social entrepreneur.[9] Let’s use the definition of social entrepreneurship provided by Ashoka and move on to define the next piece: externalities.

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Note: Check back tomorrow for the next section: defining externalities. Below, you’ll find a list of footnotes from this first section of the paper.