Crowding-in or Crowding-out? How Subsidies Signal the Path to Financial Independence of Social Enterprises

Abstract In today’s multisector configurations, there is little clarity about whether and how public private subsidies influence social enterprises’ pursuit of financial stability. We address the strategic role donors in social-business life cycle whereby enterprise start-ups rely on subsidies, while mature enterprises strive for independence from donors. To “missing middle,” we develop a typology subsidy instruments an intermediary signaling model to clarify shape evolution outcomes enterprises. argue that source variation matters certain like corporate intangibles governmentally subsidized credit guarantees, which trigger crowding-in effects attract commercial partners, preventing perverse crowding-out effects, such as soft budget constraints. illustrate this commercialization story, draw upon microfinance case study, demonstrating can induce effects. short, our helps unpack signals send funders they path future independence.