Working Paper: CEPR ID: DP15176
Authors: Eleonora Broccardo; Oliver Hart; Luigi Zingales
Abstract: We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies. We show that in a competitive world exit is less effective than voice in pushing firms to act in a socially responsible manner. Furthermore, we demonstrate that individual incentives to join an exit strategy are not necessarily aligned with social incentives, whereas they are when well-diversified investors are allowed to express their voice. We discuss what social and legal considerations might sometimes make exit preferable to voice.
Keywords: exit; voice; social responsibility; divestment; boycott; engagement
JEL Codes: D02; D21; D23; D62; D64; H41; L21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exit strategies (L14) | market value of polluting firms (Q52) |
| exit strategies (L14) | firm behavior (cleaning up operations) (D21) |
| voice strategies (L96) | firm decisions (G33) |
| individual incentives (exit) (M52) | social incentives (D71) |
| well-diversified investors (G11) | firm behavior (cleaning up operations) (D21) |
| socially responsible shareholders (G38) | cleaner technologies (Q55) |
| exit level (equilibrium) (D50) | perceived harm (D18) |
| sufficient number of socially responsible agents (D71) | voice strategy dominates exit strategy (G34) |