Responding to Failure: the Promise of Market Mending for Social Enterprise

As more non-profits embrace social enterprise, it is important to examine the role social enterprise plays in society. Market failure is the prevailing economic theory explaining non-profits’ existence, and applies to social enterprise. However, market failure theory presents a contradiction: how can social enterprise activities address market failures if they use the market-based strategies that led to that failure? We resolve this contradiction by identifying two responses to market failure: market reallocation and market mending. We examine how these responses align with social enterprise and non-profit conceptions. We discuss implications for strategy, public policy, and research.