The Value of Being Socially Responsible: A Primal-Dual Approach

Abstract

This study attempts to formalize and explain the process through which Corporate Social Responsibility (CSR) is created incorporating it into a production framework for characterizing the technology and representing the transformation process of multiple inputs into multiple outputs. CSR is one of these outputs and plays a mitigation role. Our framework allows for analyzing technical efficiency and deriving a system of internal shadow values for CSR to evaluate the overall value as well as the marginal impact of engaging in socially responsible activities for the firm. The empirical application focuses on the food and beverage manufacturing sector which is particularly interesting as it faces a broad array of both very specific and more common CSR challenges. Our results document that in the sample of 175 firms included in the analysis efficiency levels are very high with approximately 75 percent of the firms being technically efficient. We also find that the average shadow value of socially responsible activities is positive, implying that the cost of implementing these activities is compensated by their beneficial mitigating effect. When focusing on the value of CSR at the margin, our analysis shows that the average marginal value of increasing the socially responsible commitment is positive, suggesting that more CSR is considered advantageous for adding value to the firm. Conversely, the average marginal value of decreasing the CSR effort is negative, indicating that lower levels of CSR are perceived so costly and damaging that firms want to be compensated for reducing their engagement in socially responsible activities.