the limits of the economic value in measuring the performance of social entreprises
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The limits of the economic value in measuring the performance of social entreprises. Liège, 3-4 March 2011. Michel Marée & Sybille Mertens HEC-ULg, Centre d’Economie Sociale. Question : How can we compare performance of various types of providers ? Paper : - PowerPoint PPT PresentationTRANSCRIPT
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
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
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
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
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)
Accounting measure• Cost-based approach (underestimation)
• Revenue-based approach (underestimation)
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)
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
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)
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)
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
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
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)
Conclusion • CBA with CVM :
• Too ambitious
• Limits of economics
• CEA
• Social construction
• Interdisciplinary work
• Evolutive work
Contacts
Centre d’Economie Sociale – HEC-ULg
www.ces.ulg.ac.be
+ 32 4 366 27 51