Social Entrepreneur and NPO : An incomplete contract approach to collective action for public goods

The "by-product theory" of collective action is re-examined by taking into consideration the indispensability of network formation or organizing work undertaken by social entrepreneurs. A three-stage game in which an enterprise of private good-cum-collective good is undertaken is presented to examine the efficacy of the "selective incentives" schemes. The conditions for NPO to be chosen on a rational basis and those for an entrepreneur to become a social entrepreneur are derived. It is shown that even if the free-rider problem with organizing work is solved by the selective incentive scheme, the so-called undersupply problem remains to be solved as long as social entrepreneurs are of a selfish type.