Social Entrepreneurs

A friend of mine who has been working for many years in an area that is now known as social entrepreneurship commented that there is no good economic model for it (he thinks of things like this because he went to business school).

This led me to think about economic models for charitable giving. Economists usually try to model people as rational utility maximizers: we all make decisions that we believe will make us happier. Of course this is laughably false on the face of it, though in many areas of interest to economists it works well enough. Many economic theories make a simple assumption which makes the model even worse as an approximation of reality, which is to treat money as a proxy for happiness.

Models like this don’t have a good way to handle charitable giving. They have an even harder time with major philanthropic organizations. What is Bill Gates buying with the Bill & Melinda Gates Foundation? Yet surely if homo economicus exists, Bill Gates is the type specimen.

Now, obviously I’m setting up a straw man here. Nobody really thinks that money is everything. But it’s awfully easy to make a mental slip into thinking that the simplifying assumption is the reality. A signal for this is the number of articles I see about “why do people give to charity”—as though it were some sort of weird decisions that needed to be explained (there was just such an article in last Sunday’s New York Times Magazine). Medieval Europeans would have needed no explanation. The fact that we need an explanation today is a crack in our conventional view of people–a place where the mirror we use to see the world in ourselves has broken.