A Duopoly Model of Corporate Social Responsibility and Location Choice

Abstract

We adopt a framework of vertical differentiation to study the issue of Corporate Social Responsibility (CSR). We develop a model of duopoly in a two-country setting, in which firms choose the country of location, the level of CSR and finally compete in the market ? la Bertrand. We show that: i) at equilibrium the two firms choose different levels of CSR, i.e. an ethical and a neutral firm coexist in the market; ii) regardless of its location choice, the neutral firm undertakes a level of CSR equal to the minimum international standard; iii) the location choice of both the ethical and the neutral firm depends on the relative costs of CSR in the two countries; in addition the choice of the ethical firm is influenced by the distribution of consumers' tastes for CSR, while the choice of the neutral firm is affected by the level of the minimum international standard for CSR.