Corporate social responsibility,profits and welfare with managerial firms

This paper analyses the equilibrium outcomes in a duopoly market where firms follow corporate social responsibility (CSR) behaviours under managerial delegation. It is shown that in the subgame perfect Nash equilibrium of the game, both firms emerge as CSR-type, and the firms’ profitability (resp. the welfare of consumers and society) are beneficiated (resp. harmed) by the CSR behaviour. This result is in sharp contrast with the conventional result (established under non-managerial firms) that the higher the CSR sensitivity to consumer surplus, the lower (resp. higher) the firms’ profitability (resp. the consumer surplus and social welfare).     

Cooperative choice of corporate social responsibility in a bilateral monopoly model

This article presents an examination of a linear bilateral monopoly model with endogenous and cooperative choice of corporate social responsibility (CSR) level. This article also describes an investigation of the effects of cooperative choice of CSR on the market and welfare. New findings are explicit derivation of the necessary and sufficient condition for solving a double marginalization problem in the bilateral monopoly model with CSR. In addition, this report is the first demonstrating that cooperative CSR with Nash bargaining improves consumer surplus, social welfare and each firm’s profit to a level higher than that achieved through noncooperative CSR. Furthermore, cooperative CSR with Nash bargaining is shown to be capable of completely solving the double marginalization problem generated by a bilateral monopoly, although the manufacturer and the retailer are not vertically integrated.     

Strategic corporate social responsibility,imperfect competition,and market concentration

We examine the strategic use of corporate social responsibility (CSR) in imperfectly competitive markets. Before firms decide upon supply, they choose a level of CSR which determines the weight they put on consumer surplus in their objective function. First, we consider Cournot competition and show that the endogenous level of CSR is positive for any given number of firms. However, positive CSR levels imply smaller equilibrium profits. Second, we find that an incumbent monopolist can use CSR as an entry deterrent. Both results indicate that CSR may increase market concentration. Finally, we show that CSR levels decrease as the degree of product heterogeneity increases in Cournot competition and are zero in Bertrand Competition.     

Market equilibrium in the presence of green consumers and responsible firms: A comparative statics analysis

This paper analyzes how the interaction between green consumers and responsible firms affects the market equilibrium. The main result is that a higher degree of responsibility of consumers and/or firms may both increase and decrease the total abatement and the social welfare. In general an increment in the degree of CSR of a firm entails an increase of its total clean-up and a reduction of the aggregate abatement of its rival. When the rival firm has a high degree of CSR this second effect is stronger than the first and total abatement falls down. At the same time, when the degree of consciousness of consumers and/or firms is very high, responsible firms overprovide environmental quality: in such case a further increment in the level of social responsibility of a market actor may trigger an increase of firms’ total clean-up but a reduction in social welfare.     

企业社会责任标准国际化背景下企业进入策略研究*

本文通过构建博弈模型，对企业社会责任（CSR）标准国际化背景下企业进入策略进行研究。本文发现，企业最优进入策略受到进入成本影响，当进入成本较低时所有企业都适合选择进入高CSR标准市场，当进入成本较高时所有企业都不适合选择进入，当成本介于两者之间时适合部分企业选择进入。在对社会福利的分析中还发现，当进入是企业最优策略时，无论是部分进入还是全部进入，企业承担更高的社会责任能同时提升企业利润和社会福利水平。     

THE EXISTENCE OF EQUILIBRIUM IN A DIFFERENTIATED DUOPOLY WITH NETWORK EXTERNALITIES*

The existence of a pure‐strategy subgame‐perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost and network externalities operate. We show that there exists a parameter region where the incentive to predate at the quality stage prevents firms from reaching a pure‐strategy non‐cooperative equilibrium with prices above marginal costs. If network externalities are sufficiently large, a Bertrand equilibrium with zero profits may arise, although the amount of product differentiation is strictly positive.     

NON‐RIGID WAGES AND MERGER PROFITABILITY REVERSAL UNDER CONVEX COSTS AND CENTRALIZED UNIONIZATION

Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms’ convex costs) and centralized unionization. First, it is highlighted that a wage ‘non‐rigidity’ result applies: the post‐merger wage is higher than in the pre‐merger equilibrium. Second, it is shown that a ‘reversal result’ in relation to merger profitability actually realizes when the union is sufficiently oriented towards wages. Moreover, the higher the reservation wage, the degree of product differentiation, and the union's relative bargaining power, the higher the probability that a merger reduces profits.     

Corporate social responsibility and market entry

Is the decision of firms to pursue social interest and promote social progress philanthropic or motivated by strategic reasons? Using a simple Spence–Dixit entry model game with homogeneous goods, this paper studies the possible anticompetitive effect of the adoption of corporate social responsibility (CSR) in the form of “consumer friendliness” (i.e., firms’ attention to the welfare of consumers). It is shown that, when the market becomes contestable, the incumbent can select to adopt CSR to hamper to a greater extent the potential entrant, regardless of its choice to engage in CSR activities. In other words, CSR can become a strategic barrier to entry.     

Duopoly Competition with Corporate Social Responsibility

This paper highlights the effect of firms’ position on firms’ strategies with corporate social responsibility (CSR) practices under three different cases: Cournot competition; Stackelberg competition with the CSR firm taking the leader position and turnover, with the profit maximising (PM) firm playing as the leader. Some interesting conclusions are achieved. First, the CSR firm always produces more than the PM firm. Second, the outputs of both firms (the consumer surplus) under the PM firm's leading position are larger than those under Cournot. Third, the profits of both firms (producer surplus) under the PM firm playing the leading position are less than those under Cournot. Surprisingly, when the PM firm first moves, the PM firm's profits are the lowest while the CSR firm's outputs are the highest in all three cases. Finally, the relationship of social welfare under the three cases is ambiguous.     

Market structure in congestible markets

This paper analyses market structure of industries that are subject to both positive and negative network effects. The size of a firm determines the quality of its product: when network effects are positive, a larger firm is of higher quality; when the effects are negative, a larger firm's product is of lower quality. Consumers have heterogeneous preferences towards quality (firm size), and firms compete in prices. Equilibria are characterised: for example, in any asymmetric equilibrium, it must be that congestion is not too severe. One consequence of this feature is that an increase in the number of firms in the industry can raise individual firms’ profits. Two factors can bound the number of firms in a free-entry equilibrium without fixed costs: expectations, and the ‘finiteness’ property (Shaked and Sutton, Review of Economic Studies 49 (1982) 3–13, Econometrica 51(5) (1983) 1469–1483) of price competition.     

Identification of firms’ beliefs in structural models of market competition

Firms make decisions under uncertainty and differ in their ability to collect and process information. As a result, in changing environments, firms have heterogeneous beliefs on the behaviour of other firms. This heterogeneity in beliefs can have important implications on market outcomes, efficiency and welfare. This paper studies the identification of firms’ beliefs using their observed actions—a revealed preference and beliefs approach. I consider a general structural model of market competition where firms have incomplete information and their beliefs and profits are nonparametric functions of decisions and state variables. Beliefs may be out of equilibrium. The framework applies both to continuous and discrete choice games and includes as particular cases models of competition in prices or quantities, auction models, entry games and dynamic games of investment decisions. I focus on identification results that exploit an exclusion restriction that naturally appears in models of competition: an observable variable that affects a firm's cost (or revenue) but does not have a direct effect on other firms’ profits. I present identification results under three scenarios—common in empirical industrial organization—on the data available to the researcher.     

Punishment paths and cartel size

Using a ‘Dominant-group-fringe’ model, we show that the choice of a subgame perfect Nash equilibrium (SPNE) punishment path in the event that unilateral defection occurs depends upon the common discount parameter, and that when the discount parameter is given the punishment path may depend upon the size of the dominant group. The choice of punishment path is thus endogenous. A striking result is that only for sufficiently small dominant groups in sufficiently small industries are there cases where costs affect these choices. Consequently, costs are irrelevant to the choice of punishment in industries with a large number of firms.     

The impact of corporate social responsibility activities on corporate financing: a case of bank loan covenants

We examine the impact of corporate social responsibility (CSR) activities on the intensity of loan covenants, one of the most important nonpricing terms of syndicated loan contracts. Undocumented in the existing literature, we offer new evidence that while CSR strengths have little impact on loan covenants, CSR concerns lead to stricter loan covenants. These asymmetric results suggest that while lenders view CSR strengths as discretionary, they are more concerned about value-destroying CSR concerns, which induces the lenders to screen out firms engaging in nonsocially responsible activities and penalize these firms with stricter loan covenants. Combined with the evidence on the CSR-loan spread association in the existing literature, our results provide strong evidence that CSR matters to both pricing and nonpricing terms of loan contracts.     

Multi-Dimensional Product Differentiation

We analyze product differentiation in a multi-dimensional model with non-uniform consumer distribution. The level of product differentiation is measured by both unit transport costs and firms’ locations. Our analysis concerns both measures. First, fixing firms’ locations, we show that equilibrium prices can increase or decrease with unit transport costs. The overall result depends on the interplay of a shifting effect and a rotating effect—the latter exists only in multi-dimensional models. Second, fixing unit transport costs, we find that under non-uniform distribution, there may exist no equilibrium where firms maximize differentiation on one dimension but minimize differentiation on other dimensions. Instead, there may exist an equilibrium where firms choose intermediate locations, contrary to common findings in existing studies which assume uniform distribution.     

Corporate Social Responsibility and International Competition: A Welfare Analysis

This paper examines the welfare implications of corporate social responsibility (CSR) in international markets under imperfect competition. Based on a stylized model of an import‐competing duopolistic market, we show the feasibility of moving toward tariff reductions when both domestic and foreign firms launch CSR initiatives in that their payoffs include not only individual profits, but also the benefits of consumers. For the case where the foreign exporter unilaterally adopts the consumer‐oriented CSR as a strategy, there is a rent‐shifting effect because the foreign firm's payoff increases whereas the domestic firm's profit decreases. In response, the importing country's government raises its tariff on the foreign product. If, instead, the domestic firm adopts the CSR strategy unilaterally, the rent‐shifting effect disappears and both the competing firms’ payoffs increase. We further identify the conditions under which the CSR initiatives of the firms constitute the dominant strategy, leading to a Pareto efficient outcome at which the firms’ payoffs, consumer surplus, and social welfare are at their maximum levels.     

Attracting responsible employees: Green production as labor market screening

Corporate social responsibility can improve firms’ ability to recruit highly motivated employees. This can secure socially responsible firms’ survival even in a highly competitive environment. We show that if both socially responsible (green) and non-responsible (brown) firms exist in equilibrium, workers with high moral motivation, who shirk less than others, will self-select into the green firms. If unobservable effort is sufficiently important for firm productivity, this can drive every brown firm out of business—even in the case where many workers have no moral motivation whatsoever.     

Corporate social responsibility and strategic relationships

We analyze a delegation game relevant to the conduct of corporate social responsibility (CSR) in which the firm’s owner offers the manager a contract consisting of firm profit and social welfare. We derive three results that distinctly differ from existing findings. First, CSR decisions are strategic complements for firms. Second, with simultaneous CSR decisions, the equilibrium price is equal to marginal cost, despite the fact that firms compete in a Cournot duopoly. Finally, with sequential CSR decisions, unlike the follower firm, the leader firm never exhibits CSR. However, the follower firm can enjoy a profit equal to that derived by the leader in a Cournot–Stackelberg game.     

Labor market effects of export processing zones in the presence of unemployment

When foreign firms motivated by higher profits engage in off-shore production activities of unemployment ridden host countries, concerns increase about the possibility of exploitation of local workers. However, using a two good two factor model this paper shows that foreign firms’ engagement under the scenario actually improves the host country's structure of wages, skill composition, employment level and wage inequality which cannot be achieved under full employment in the host countries. This paper thus presents a mechanism that explains the effects of export processing zones observed in most of the transitional economies of the world. Results have practical implications for traditional structural changes expected for these economies. Although foreign firms come to earn profits, it is possible for host country workers to take a part of the rent away from the foreign firms as they are doing currently in different parts of the world.     

Corporate Social Responsibility in the work place

We analyze the effect of investments in corporate social responsibility (CSR) on workers’ motivation. In our experiment, a gift exchange game variant, CSR is captured by donating a certain share of a firm’s profit to charity. We are testing for CSR effects by varying the possible share of profits given to charity. Additionally, we investigate the effect of matching mission preferences, i.e., a worker preferring the same charity the firm donates to. Our results show that, on average, workers reciprocate investments in CSR with increased effort. Matching mission preferences also result in higher effort, independently of the extent of the CSR investment.     

Effects of corporate governance on the decision to voluntarily disclose corporate social responsibility reports: evidence from China

This article investigates effects of corporate governance on the decision to voluntarily disclose corporate social responsibility (CSR) reports. By using a unique longitude data set of Chinese publicly traded manufacturing firms from 2010 to 2016, this study finds that ownership structure and board characteristics are significantly associated with firms’ decisions to voluntarily disclose CSR reports. In particular, our study finds that state ownership, institutional ownership, managerial ownership and board size are positively and significantly associated with the decision to voluntarily disclose CSR reports. However, board independence is not related to the decision. We also find CEO duality is negatively and significantly related to the decision. Our findings highlight the role of corporate governance in firms’ transparency by influencing the voluntary disclosure of additional information on firms’ CSR activities.