Social Innovation as the Community Provision of Public Goods

Abstract Social innovation is a topic of growing interest for research and a policy-relevant theme. This paper aims to develop an economic model to analyse social innovation as the community provision of a public good. In our model, social innovation is produced by social innovators in favour of the members of a target group. On the one hand, we assume social innovation to be an imperfect substitute for a “traditional” group-specific public good, produced by the local government and financed by taxes. On the other hand, social innovators are motivated to act by social preferences. Our results focus on public policy towards social innovation. We show that, from a welfare point of view, the traditional public good and social innovation should coexist, with governments also playing an active role in supporting social innovation through subsidies. We also show that each community member can be better off with social innovation, as relying on social innovators’ motivations can lower taxes used to finance traditional public goods and social innovation subsidies.