t he limits of the economic value in measuring the performance of social entreprises michel marée...
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THE LIMITS OF THE ECONOMIC VALUE IN MEASURING THE PERFORMANCE
OF SOCIAL ENTREPRISES
Michel Marée & Sybille Mertens
HEC-ULg, Centre d’Economie Sociale
Liège, 3-4 March 2011
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Introduction• Question : How can we compare performance of various types of
providers ?
• Paper :
• Synthetic analysis of the various methods used to measure global performance, including non-market dimensions of performance
• Focus : limits of the economic value
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One example
• Dimensions of performance of a work integration social enterprise active in the area of waste collection and recycling
Market dimensions Non-market dimensions
Output Sales of recycled products IntegrationRecycling activity
Direct impacts Utility of buyers (buying the products)
Increase in the employabilityWaste collection
Indirect impacts Protection of the environmentSocial cohesion
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Dimensions of performance
Output (Achievements)
Direct impacts (outcomes)
on direct beneficiaries
Indirect impact (externalities) on
indirect beneficiaries (including collective
impacts)
Market
dimension
Non-market
dimension
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The measures of nonmarket production
Approaches Accounting measures Resources used
Economic measures Optimization
Theoretical reference
National accounting
CEA
CBA: monetary valuation
(Welfare analysis)
Tools
Accounting value
cost-based approach revenues-based approach
Indicators
+ qualitative analysis
Indirect
monetary value
Economic value (WTP)
revealed preferences expressed preferences (CVM)
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The measures of nonmarket production
Approaches Accounting measures Resources used
Economic measures Optimization
Theoretical reference
National accounting
CEA
CBA: monetary valuation
(Welfare analysis)
Tools
Accounting value
cost-based approach revenues-based approach
Indicators
+ qualitative analysis
Indirect
monetary value
Economic value (WTP)
revealed preferences expressed preferences (CVM)
![Page 7: T HE LIMITS OF THE ECONOMIC VALUE IN MEASURING THE PERFORMANCE OF SOCIAL ENTREPRISES Michel Marée & Sybille Mertens HEC-ULg, Centre d’Economie Sociale](https://reader035.vdocuments.site/reader035/viewer/2022062407/56649f475503460f94c69a95/html5/thumbnails/7.jpg)
The measures of nonmarket production
Approaches Accounting measures Resources used
Economic measures Optimization
Theoretical reference
National accounting
CEA
CBA: monetary valuation
(Welfare analysis)
Tools
Accounting value
cost-based approach revenues-based approach
Indicators
+ qualitative analysis
Indirect
monetary value
Economic value (WTP)
revealed preferences expressed preferences (CVM)
![Page 8: T HE LIMITS OF THE ECONOMIC VALUE IN MEASURING THE PERFORMANCE OF SOCIAL ENTREPRISES Michel Marée & Sybille Mertens HEC-ULg, Centre d’Economie Sociale](https://reader035.vdocuments.site/reader035/viewer/2022062407/56649f475503460f94c69a95/html5/thumbnails/8.jpg)
Cost-effectiveness analysis• Physical indicators (+ qualitative analysis)
• Limits :
• Partial character of the indicators
• Weigthing problems
• Specific character of the indicators
• Requirement for interdisciplinary work
• Existence of intangible impacts
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The measures of nonmarket production
Approaches Accounting measures Resources used
Economic measures Optimization
Theoretical reference
National accounting
CEA
CBA: monetary valuation
(Welfare analysis)
Tools
Accounting value
cost-based approach revenues-based approach
Indicators
+ qualitative analysis
Indirect
monetary value
Economic value (WTP)
revealed preferences expressed preferences (CVM)
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Cost-benefit analysis• Comparing the costs and the benefits
• NAV = (Bi –Ci)/(1+r)i with i = 0,…,n
• Two techniques :
• Indirect monetary value
• Economic value (Willingness to pay- WTP)
• Revealed preferences
• Expressed preferences (Contingent valuation Method-CVM)
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Cost-benefit analysis• Advantages :
• Rigorous, WTP explained by the consumer theory
• Objective (based on individual’s preferences)
• Global (covering all dimensions)
• Consistent with the evaluation of market goods
• Limits :
• Technical
• Methodological : embedding effect, scope effect , sequence effect and warm-glow effect
• Conceptual
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Conceptual limits
EV = SVi
for i = 1,…,N, where N is the number of persons concerned and
SVi = V(Ui) = WTPi,
• Hypothesis :
• Max of the utility function
• Monetary measures of the variation in utility
• Assimilation of utility to value (welfare approach)
• Economic value = sum of individual subjective values
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Conceptual limits
Conceptual basis of economic value
Limits
1 Maximization of the utility function Bounded rationality of the consumer => indeterminate preferences
2 Monetary measure of variations in utility
Bounded rationality of the consumer => indeterminate utility variations
3 Assimilation of utility to welfare Existence of non-use values => not reducible to variations in welfare
4 Economic value as the sum of individual subjective values
"Bounded awareness" of the consumer => existence of so-called "socially constructed values", distinct from the sum of the individual subjective values
5 Individual goals assumed to be expressed (amorality of the model)
Particular perception of value (paradigm of individualism)
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Conclusion • CBA with CVM :
• Too ambitious
• Limits of economics
• CEA
• Social construction
• Interdisciplinary work
• Evolutive work
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Contacts
Centre d’Economie Sociale – HEC-ULg
www.ces.ulg.ac.be
+ 32 4 366 27 51