Corporate social responsibility by joint agreement

Abstract

Industry-wide voluntary agreements are touted as a means for corporations to take more corporate social responsibility (CSR). We study what type of joint CSR agreement induces competitors to increase CSR efforts in a model of oligopolistic competition with differentiated products. Consumers have a higher willingness to pay for more responsibly produced goods and services. Firms are driven by profit, and are also possibly intrinsically motivated, to invest in CSR. We find that cooperative agreements directly on the level of CSR reduce CSR efforts compared to competition. Such agreements throttle both for-profit and intrinsic motivation for CSR. CSR efforts only increase if agreements are permitted solely on output. Such production agreements, however, reduce total welfare in the market and raise antitrust concerns. Taking externalities into account may help justify a production agreement under a broader welfare standard, but not agreements on CSR directly. Simply setting a higher mandatory CSR standard by regulation while preserving competition always gives higher within-market welfare.