Partial Ownership for a Public Firm and Corporate Social Responsibility

Lihua Han

doi:10.4236/tel.2019.97155

Abstract

This paper introduces corporate social responsibility (CSR) into a traditional mixed oligopoly to examine effects of firms’ CSR activities on privatization of a public firm. Private CSR firms take both profits and consumer surplus into consideration. It is shown that the optimal degree of privatization (nationalization) decreases (increases) with an increase in the percentage of consumer surplus taken into account by the CSR firms. In other words, the government should hold more shares in the partially privatized firm when the private firms are CSR rather than pure profit-maximizing ones. Furthermore, we find that it is socially optimal that the CSR firms partly (not totally) consider consumers’ benefits.

Highlights

One of the issues analyzed by literature on mixed oligopoly is the decision by governments on whether to partially privatize their public firms
It is shown that the optimal degree of privatization decreases with an increase in the percentage of consumer surplus taken into account by the corporate social responsibility (CSR) firms
We make an attempt to introduce an aspect of CSR into mixed oligopoly, wherein private firms interact with public firms, to examine the impacts of firms’ CSR behaviors on privatization policies of a government

Summary

Introduction

One of the issues analyzed by literature on mixed oligopoly is the decision by governments on whether to partially privatize their public firms. This literature on mixed oligopoly usually assumes that private shareholders maximize their own profits, which neglects the Corporate Social Responsibility (CSR). De Fraja and Delbono [11] analyze whether to privatize publicly-owned firms in a mixed oligopoly, in which public shareholders pursue maximization of social welfare while private shareholders maximize their own profits. Such as Goering [20] and Wang et al [21], a CSR firm considers its own profit and consumer benefits, which is obviously different from the traditional mixed oligopoly In this case, is partial privatization still optimal? To obtain the sub-game perfect Nash equilibrium, we solve the game by standard backward induction method

Equilibrium and Outcomes

Concluding Remarks