In Medio Stat Virtus: Does a (More) Balanced Economy increase Welfare?

We consider an economy made up by two industrial sectors. Sector A produces a good. Sector B supplies a social service. Each industry is characterized by a Hotelling-type linear segment where two firms are located at the extremes. We compare two different economic systems. A market economy where all firms are for-profit. A "more balanced" economy, where both firms are for-profit in Sector A, whilst one firm is nonprofit in Sector B and maximizes the surplus of its customers. We refer to this system as mixed economy. We find that: (i) individuals are more likely to have access to the social service under the mixed economy; (ii) the utilitarian welfare is larger under the mixed economy only when transportation costs are relatively high. Our findings are robust when ideological rather than transportation costs are considered. A possible policy recommendation based on our findings is that the entry of nonprofit firms should be encouraged in social service industries where horizontal differentiation matters, be it related to transportation or ideology.