Working Paper: CEPR ID: DP18121
Authors: Rui Albuquerque; Luis Cabral
Abstract: We propose a theory of strategic Corporate Social Responsibility (CSR). Value maximizing shareholders play an industry CSR game where they can opt for an objective function that extends beyond shareholder value, thus conditioning other strategic firm de- cisions. The theory provides a formalization of the “doing well by doing good” adage in an industry setting. We develop conditions such that the CSR game is a pure coordination game, which provides a natural and novel theory of strategic leadership in CSR: By com- mitting to a CSR objective function, a first mover leads the industry to a Pareto superior equilibrium. The theory can rationalize recent evidence on correlated industry-wide CSR adoption, and carries implications for competition policy.
Keywords: leadership; corporate social responsibility; shareholder model; stakeholder model; externalities; mission statement; competition policy; sustainability agreements
JEL Codes: D24; G32; G34; L20; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CSR adoption (M14) | improved outcomes for shareholders and stakeholders (G38) |
| CSR commitment (M14) | other industry participants adopting similar practices (L19) |
| joint embrace of CSR (M14) | higher profits and social welfare (D69) |
| strategic leadership in CSR (M14) | internalization of externalities (D62) |
| actions of one firm (L21) | responses of others in the industry (L89) |
| CSR adoption (M14) | improved industry performance (L19) |