Abstract
We analyze the effects of strategic Corporate Social Responsibility (CSR) on social welfare in an industry where firms are owned by consumers (publicly owned) and CSR commitment takes the form of a fraction of the consumer surplus into the firms’ objective function. We compare this market configuration with the standard case of firms owned by entrepreneurs (privately owned). In line with the empirical evidence, consumers’ ownership gives an incentive to adopt a socially responsible, welfare improving statute. While privately-owned companies are limited in the level of social concern to implement, publicly-owned companies are not, and CSR is welfare-improving for any level of social concern. Surprisingly, a market configuration of publicly-owned CSR companies decreases welfare compared to an oligopoly of privately-owned CSR companies. The analysis is then extended by considering asymmetric oligopolies with different company types.
Highlights
The last two decades have seen Corporate Social Responsibility (CSR) become a central topic in the corporate world and business reporting
We analyze the effects of strategic Corporate Social Responsibility (CSR) on social welfare in an industry where firms are owned by consumers and CSR commitment takes the form of a fraction of the consumer surplus into the firms’ objective function
Proposition 1 is in line with the results of the literature on strategic CSR: since profits are lower in the case of CSR, there are no private incentives to reach a market configuration of an oligopoly composed of all privately-owned CSR firms, even though such a configuration would be socially desirable
Summary
The last two decades have seen Corporate Social Responsibility (CSR) become a central topic in the corporate world and business reporting. Equilibrium quantities are set at a lower level than in the case of privately-owned CSR firms, suggesting that the socially concerned effort is stronger in private companies This result is again related to the fact that publicly-owned CSR firms take into account the consumers’ ownership, that is, the earnings from consumers’ shares. A market configuration based on publicly-owned CSR firms remains still possible and is welfare-enhancing with the increase of the level of social concern. To this respect, we evaluate the condition to reach the Pareto Optimum, whenever possible. In a market structure of public companies, CSR activities are welfare-enhancing compared to profit-seeking activities, for any level of social concern.
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