Article

Selling to Socially Responsible Consumers: Competition and The Private Provision of Public Goods

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Abstract

We model firms as competing for socially responsible consumers by linking the provision of a public good (environmentally friendly or socially responsible activities) to sales of their private goods. In many cases, too little of the public good is provided, but under certain conditions, competition leads to excessive provision. Further, there is generally a trade-off between more efficient provision of the private and the public good. Our results indicate that the level of private provision of the public good varies inversely with the competitiveness of the private-good market and that the types of public goods provided are biased toward those for which consumers have high participation value.

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... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. In other words, Bagnoli & Watts (2003) limited "responsibility" of the corporate only to the company's responsibility towards its shareholders and its employees. ...
Chapter
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The aim of this research is to investigate the relationship between innovation and economic diversification in the Sultanate of Oman. Quantitative research method has been implemented using secondary data. Granger causality test used to assess the impact of each variable on the other one for the Omani economy from 2011 to 2019. The study found a significant impact of economic diversification on innovation while there is no significant impact of innovation on economic diversification in Omani economy. The outcomes of this research will be very helpful to the Omani policy makers as it may sheds the light on policies needed to be taken by them to achieve the sustainable development in the Sultanate.
... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. In other words, Bagnoli & Watts (2003) limited "responsibility" of the corporate only to the company's responsibility towards its shareholders and its employees. ...
Chapter
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The purpose of this current study is to understand the usage and implementation of Industry 4.0 (I 4.0) in Indian organizations with special reference to BFSI segment to improve their competitiveness, efficiency and productivity. Cyber Security has been one of the Key Pillars of I 4.0 in the BFSI Segment. The company has been assessed on this Pillar. Our study finds and conclude that few organizations studies have been conducted using industry 4.0 tools & techniques. The Maturity level as per the Questionnaire surveys has been medium to low. The maturity level has been assessed for 5 levels. With reference to implications, the results have been based on limited data and developed as Case Study. Nevertheless, this can form basis to understand the Usage of I 4.0 tools & techniques in organizations in the segment. Hence, utility of the study our study is that, this paper is one of the few studies conducted recently that provides insight into the usage and applicability of Industry 4.0.
... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. In other words, Bagnoli & Watts (2003) limited "responsibility" of the corporate only to the company's responsibility towards its shareholders and its employees. ...
Chapter
Full-text available
This study aims at deconstructing a conceptual muddle surrounding the concept of corporate social responsibility (CSR) that results when the concept is used. To achieve this aim, the study adopted the analytical approach commonly used in analytical philosophy, and “deconstruction of conceptual muddle”. The study concludes that there is a conceptual muddle related to the many concepts used, synonymously or differently with (CSR). There is also a conceptual muddle due to (CSR) emergence, its advantages and disadvantages. In addition, conceptual muddle noted due several index selected for measurement (CSR). The main conceptual muddle resulted from the failure to define “corporate responsibility”, whether corporate responsibility towards maximizing the profits of their shareholders, or towards society and environment.
... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... The first thing that catches the eye when perusing the various literatures that discuss the (CRS), is the failure to define what is meant by "responsibility," this creates conceptual muddle. Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. ...
... Bagnoli & Watts (2003) indicated that the first responsibility of the corporate that it should pay attention to maximize profits (Bagnoli & Watts, 2003). Bagnoli & Watts (2003) debated that "responsibility" of the company must be towards the rights of its shareholders in the first place. In other words, Bagnoli & Watts (2003) limited "responsibility" of the corporate only to the company's responsibility towards its shareholders and its employees. ...
Conference Paper
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The study aim was to investigate the impact of corporate social responsibility disclosure (CSRD) on the financial performance (FP) of Palestinian and Jordanian banks. All banks listed on the Palestine Exchange (PEX) and Amman Stock Exchange (ASE) during the period 2010–2019 were considered. The study employed regression model on a sample of 60 Palestinian bank-observations and 150 Jordanian bank-observations. While CSRD was measured using a disclosure index includes 30 items, return on assets (ROA), return on equity (ROE) and Tobin's Q were used to measure FP. Results of the study reported a significant positive relationship between CSRD and Tobin's Q (Q ratio). However, no relationships were identified between CSRD and the other two FP indicators. The study recommended to improve the quality of CSRD through extending the minimum regulatory requirements related to CSRD in Palestine and Jordan. Furthermore, all related parties must be educated about the importance of CSRD and its practices.
... Practically, an increase of a unit of competition level The symbols *, ** and *** denote the level of significance at 10%, 5%, and 1% respectively leads to an increase of 0.0072 CSR activities. This is in line with previous research by Bagnoli and Watts (2003), Chih, Chih, andChen (2009), andFernándezkranz andSantaló (2010 Notes: The figures stated are beta coefficients and the figures inside the parenthesis are standard error. The symbols *, ** and *** denote levels of significance at 10%, 5%, and 1% respectively. ...
... Firms will have more CSR activities due to tough competition -assisting their competitive advantage -rather than due to deed. Our results also support the findings of Bagnoli and Watts (2003), Chih, Chih, andChen (2009), andFernándezkranz andSantaló (2010). For instance, Bagnoli and Watts (2003) address the theoretical argument that CSR practices by firms are due to the competitiveness of the private good market. ...
... Our results also support the findings of Bagnoli and Watts (2003), Chih, Chih, andChen (2009), andFernándezkranz andSantaló (2010). For instance, Bagnoli and Watts (2003) address the theoretical argument that CSR practices by firms are due to the competitiveness of the private good market. Meanwhile, Chih et al. (2009) reveal that listed firms in the US would act in more socially responsible ways when the market competitiveness is more intense. ...
... Baron (2007), Chowdhry et al. (2019), Gollier and Pouget (2014), and Oehmke and Opp (2020) consider the impact of divestment, but for the case of large as opposed to atomistic investors There is also a smaller literature on consumer boycotting (see Kitzmueller and Shimshack (2012) for a survey). Boycotts can be seen as a way to redistribute surplus (see Baron (2001)), or as a way to induce companies to provide a public good (see Bagnoli and Watts (2003) and Besley and Ghatak (2007)). In Bagnoli and Watts (2003) and Besley and Ghatak (2007), each consumer is selfish in that he values his consumption of the public good and not the utility from the public good accruing to others. ...
... Boycotts can be seen as a way to redistribute surplus (see Baron (2001)), or as a way to induce companies to provide a public good (see Bagnoli and Watts (2003) and Besley and Ghatak (2007)). In Bagnoli and Watts (2003) and Besley and Ghatak (2007), each consumer is selfish in that he values his consumption of the public good and not the utility from the public good accruing to others. ...
... Some of the literature on socially responsible investment and consumption departs from the purely moral view. For example, Graff Zivin and Small (2005), Morgan and Tumlinson (2019), Bagnoli and Watts (2003), and Besley and Ghatak (2007) endogenize investor and consumer choice by assuming that an individual will value a share or good based on a combination of its private characteristics and the increased harm resulting from production. However, these authors assume that individuals consider only the personal disutility of the increased harm, ignoring the impact on others. ...
Article
Post-1978 reforms in China implemented the Household Responsibility System to replace collective agriculture. Some villages resisted the new policy and remained collective. Interestingly, these villages achieved remarkable prosperity in the post-1978 era. I describe the organizational structure of these villages, and I attempt to explain their economic success. I argue that the prosperity of the collective villages is explained with self-selection and the introduction of market incentives. Specifically, only the villages which were able to exploit the economies of scale and mitigate moral hazard remained collective after the reforms. Market incentives provided additional motivation to address the moral hazard. This explanation is consistent with the fact that the Household Responsibility System led to higher productivity than the earlier system of People’s Commune. Nevertheless, the case of collective villages illustrates the fact that the problem of the Household Responsibility System was its universal character. Just like the system of People’s Commune, the new policy was an attempt to impose one organizational structure on all agricultural production while leaving little room for organizational diversity.
... As a consequence, consumers are willing to pay a higher price for the product with the CSR attribute (e.g., Heslin and Ochoa 2008;McWilliams and Siegel 2001). In Bagnoli and Watts (2003) firms are linking the provision of a public good (CSR or environmentally friendly activities) to sales of their private goods in quantity and price competition. As one of the main results they find that in most cases, too little of the public good is provided. ...
... Kopel and Lamantia (2018) summarize this literature and study an evolutionary setting of mixed oligopolistic competition between profit-maximizing firms and socially concerned firms. Bagnoli and Watts (2003) find an inverse relationship between the intensity of competition and provision of CSR, i.e., increasing market competition leads to decreasing levels of CSR activities. Fisman et al. (2006) use a signaling model and conclude that strategic CSR is more likely to be observed when the intensity of competition in the product market is higher; see also more recently Harjoto and Jo (2011). ...
Article
Full-text available
In this paper, I study the conditions under which a CSR leader, that is a firm which commits to invest in socially responsible activities prior to its competitor, can develop a first-mover advantage. A price-setting duopoly market with horizontally differentiated products is considered, where firms can increase the willingness to pay of the consumers of their products by investing in socially responsible activities. It is shown that if the investment in CSR is perfectly specific to the CSR leader and does not spill over to the CSR follower, the CSR leader achieves higher profits. Hence, a first-mover advantage arises. If however, CSR investment spills over to and hence benefits also the CSR follower by increasing the follower sales, then a second-mover advantage might arise for the follower. A characterization is provided for the influence of the intensity of competition and the level of spillovers on the relative and absolute level of CSR activities and the firms’ incentives to engage in CSR.
... A high environmental, social, and governance (ESG) rating provides many benefits to a firm and its internal stakeholders, including increased customer willingness to pay (e.g., Bagnoli and Watts, 2003;Baron 2008Baron , 2009, the attraction of more capital from altruistic investors (e.g., Ceccarelli, Ramelli, and Wagner 2019;Hartzmark and Sussman 2019), and better career prospects for the management team (e.g., Dai et al. 2019;Cai et al. 2020), among others. In maintaining these benefits, firms with higher ESG ratings (hereafter "green" firms) and more ESG-oriented CEOs and directors (hereafter "green" management and "green" directors) face greater internal pressure to uphold their domestic reputations by shifting pollution-intensive production overseas through the upstream supply chain. ...
... Prior research suggests that companies can "do well by doing good." A high ESG score can benefit firms with better product quality signaling (e.g., Fisman, Heal, and Nair 2006;Siegel and Vitaliano 2007); increased customer willingness to pay (e.g., Bagnoli and Watts, 2003;Baron 2008Baron , 2009 incentives to outsource pollution in maintaining a good front. We test this mechanism by employing the triple-interaction model (6). ...
... Another strand of literature shows that a firm's unethical behavior may be a strategy that management adopts to decrease costs that management follows to compensate for the markup reduction caused by strong market competition (Bagnoli and Watts, 2003;Shleifer, 2004). In this vein, (Newman et al., 2018) argued that fierce competition from international competitors decreased markup and induced management to cut non-essential expenditures, CSR compliance included, in order to survive in the domestic market. ...
... The empirical results (Table 2) are in agreement and are statistically significant across the three specifications. Contrary to the stream of literature supporting the assumption that competitive markets harm the supply of public goods, such as CSR, to preserve a firm's profits (Bagnoli and Watts, 2003;Shleifer, 2004;Newman et al., 2018), the Ler was correlated negatively with environmentally friendly policies, as well as with good social and corporate governance practices. This confirmed the assumption that firms supplying low-differentiated goods (such as banks in our case) implement social actions as a competitive tool to capture responsible awareness clients (Jones, 1995;Fernández-Kranz and Santaló, 2010;Flammer, 2015;Vashchenko, 2017;Acabado et al., 2020), or, more generally, to promote a philanthropic image to the public opinion which, in the long term, enhances banks' profitability (Shen et al., 2016). ...
Article
According to the established literature, banks undertake social investment to compensate for the benefits enjoyed by the society. At first glance, one could expect more involvement in corporate social responsibility (CSR) from banks that have greater monopolistic power. However, this perspective would differentiate between banks and non-financial firms, since the latter use CSR engagement as a competitive lever. Thus, it follows that greater market pressure boosts a firm’s CSR investments. This conundrum has triggered the present analysis which, after estimating a Lerner index and then running a system-GMM regression, verified the impact of a firm’s monopolistic competition based on three scores pertaining to the listed banks’ CSR commitment. Our results support the view that the level of social responsibility of the banks’ management is affected by their markup on price.
... However, when a company deviates from the norm by adopting environmentally sound production technology, it can gain a competitive advantage over the others . Other researchers say that companies are engaged in CSR to maximize their profit Bagnoli and Watts, 2003). While other authors consider the integration of CSR to be a moral duty that enables firms to act responsibly towards society . ...
... Relationship between Corporate Social Responsibility and Profitability. Academy ofAvkiran, N. K. (2006). Developing foreign bank efficiency models for DEA grounded in finance theory. Socio-Economic Planning Sciences, 40(4), 275-296.Bagnoli, M., & Watts, S. G. (2003). Selling to Socially Responsible Consumers: Competition andThe Private Provision of Public Goods. Journal of Economics Management Strategy, 12(3),. Corporate Social Responsibility as a Conflict between Shareholders.Barnett, M.L. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsib ...
Thesis
This thesis, consisting of three essays, focuses on the CSR performance of banks. On the one hand, we conduct a microeconomic analysis of the effects of banks' CSR performance on their behavior and, on the other hand, a macroeconomic analysis of the impact of some macro-economic factors on the CSR performance of the same banks. Thus, in a first essay, we study the efficiency of banks engaging in CSR activities. In particular, we analyze how the adoption of CSR activities by banks impacts their efficiency. We find that high CSR performance increases the efficiency of banks. However, this relationship depends on various economic and institutional factors. Specifically, it appears that CSR increases bank efficiency only in developed countries, in countries where investor protection is high and in countries with a high level of stakeholder orientation. We thus assert that some institutional charac-teristics must be present for the positive impact of CSR on bank efficiency to materialize. In a second essay, we examine the role that CSR performance can play in banks' exposure to systemic risk. Our results show that CSR performance reduces banks' exposure to systemic risk. An analysis of the CSR pillars shows that exposure to systemic risk is reduced specifically by good governance and social performance. We also find that the institutional environment has a role in the relationship between CSR performance and systemic risk. Some institutional specificities reduce the exposure of CSR banks to systemic risk, while other regulatory features may make these banks potentially vulnerable to systemic risk. Finally, our third essay examines the impact of economic policy uncertainty on banks' CSR performance. We show that economic policy uncertainty has a positive impact on CSR performance. Banks increase their investments in CSR activities in times of uncertainty. We find that this relationship is persistent over time and for all CSR dimensions.
... Lado and Wilson (1994) 2 defined the HRM system as "a set of distinct but interrelated activities, functions, and process that are directed at attracting, developing, and maintaining (or disposing of) a firm's human resources." Bagnoli and Watts (2003) 3 , if the market for "brown" (less environmentally friendly) products is highly competitive, then its prices will be low, and fewer consumers will wish to buy "green" products. However, if the brown market exhibits market power, then prices will be high and consumers will switch to the green goods. ...
... Lado and Wilson (1994) 2 defined the HRM system as "a set of distinct but interrelated activities, functions, and process that are directed at attracting, developing, and maintaining (or disposing of) a firm's human resources." Bagnoli and Watts (2003) 3 , if the market for "brown" (less environmentally friendly) products is highly competitive, then its prices will be low, and fewer consumers will wish to buy "green" products. However, if the brown market exhibits market power, then prices will be high and consumers will switch to the green goods. ...
Article
Full-text available
HR Manager is the associate of the organization to make sure that he must be competent & talented to attract and retain talent, widen potential and increase performance in support of organizational goals but not at the cost of the environment. He must put efforts to deal, manage & control with human resources to this crucial agenda. HR is not only accountable for Green but he is also responsible to take views & opinions of employees to formulate & implement strategies towards Green HRM.
... To broaden our understanding of the importance of green management practices, we also need to analyse how strategic CSR affects society. As noted in Bagnoli and Watts (2003), strategic CSR occurs when a company links the provision of a public good to the sale of their (private) products (e.g. eco-labelling). ...
... Given that affluent consumers are most likely to demand high-quality goods and services, CSR as a signal of product quality is likely to be associated with upscale goods and services that typically generate higher profit margins. Siegel and Vitaliano (2007) extended insights from the Bagnoli and Watts (2003) and McWilliams and Siegel (2001) models. Specifically, the authors conjectured that consumers view CSR activity as a signal about the attributes of the private good sold by the firm. ...
... Recently, CSR has been directly associated with firms' performance [see among others Vilanova et al., 2009;and Porter and Kramer, 2006]. According to Amin-Chaudhry [2016] and Bagnoli and Watts [2003], firms engage in profit-maximizing CSR, being their lead motivation. Therefore, the proponents of CSR are convinced that investment in CSR enhances the firm's long-term revenue and reputation [Manzano and Fernandez, 2016;Burke and Logsdon, 1996]. ...
Preprint
This chapter aims to critically review the existing literature on the relationship between corporate social responsibility (CSR) and corporate governance features. Drawn on management and corporate governance theories, we develop a theoretical model that makes explicit the links between board diversity, CSR committees' attributes, CSR and financial performance. Particularly, we show that focusing on the cognitive and demographic characteristics of board members could provide more insights on the link between corporate governance and CSR. We also highlight how the functioning and the composition of CSR committees, could be valuable to better understand the relationship between corporate governance and CSR.
... In general, two types of CSR activities are identified: not-for-profit and strategic CSR (Kitzmueller and Shimshack 2012). The former refers to CSR decisions as private (corporate) provision of public goods (Bagnoli and Watts 2003;Kotchen 2006;Besley and Ghatak 2010). The latter refers to the fact that CSR practices affect the interaction between firms and stakeholders, such as socially or environmentally concerned consumers, political activists, employees, and competitors. ...
Article
Full-text available
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.
... investor protection is lower in emerging markets (La Porta et al., 1998), allowing managers to more frequently pursue pet projects, such as ESG-related projects (Bagnoli and Watts, 2004;Fernández-Kranz and Santaló, 2010). Second, institutions and rules about environmental and social investments are weaker and less developed, corporate practices are more opaque, markets are less efficient, and relationships are perceived as more corrupt (Kaufmann et al., 2011;Witt et al., 2016). ...
Preprint
This paper investigates how competition affects corporate environmental, social, and governance practices (ESG) in 22 emerging markets using a sample of 5.971 firm-year observations from 2011 to 2019. Using a differences-indifferences technique and matched samples from a treated vs. control group configuration, I explore exogenous variation in one country's competitive environment (i.e., Brazil) to assess the causal effect from competition to ESG. The results suggest that firms adjust ESG practices negatively after a competition shock, which contrasts with previous results from developed economies.
... investor protection is lower in emerging markets (La Porta et al., 1998), allowing managers to more frequently pursue pet projects, such as ESG-related projects (Bagnoli and Watts, 2004;Fernández-Kranz and Santaló, 2010). Second, institutions and rules about environmental and social investments are weaker and less developed, corporate practices are more opaque, markets are less efficient, and relationships are perceived as more corrupt (Kaufmann et al., 2011;Witt et al., 2016). ...
... As mentioned earlier, the model used, and the dataset, could have fit better even though the relationship between these two factors is significant. The final limitation, also mentioned by other scholars (e.g., Bagnoli and Watts 2003;Dalal and Thaker 2019), is that there might be an omitted variable problem with other variables affecting either financial performance and/or ESG. These variables might be "degree of competition" or other factors affecting the chosen companies' business environment. ...
Article
The world is constantly changing, and with an evolving global environmental crisis, there is a growing trend of Corporate Social Responsibility, and Environmental, Social, and Governance (ESG) disclosure initiatives. The final report on the new E.U. taxonomy for sustainable activities was released in 2020, making ESG disclosure more relevant. This paper investigates the effects of ESG initiatives on the financial performance of Norwegian listed companies from 2010 to 2019. ESG is measured through the Thomson Reuters Eikon ESG disclosure score and financial performance through ROA and Tobin’s Q. To the best of our knowledge, this is the first time this relationship has been investigated in Norway. Using panel data regression analysis and two proxies for the dependent variable (financial performance), the results of this study are mixed. In particular, findings suggest a strong significant relationship between ESG initiatives and financial performance. More specifically, the regression model, with ROA as the dependent variable, suggests that ESG initiatives have a clear negative impact. On the other hand, the variable Tobin’s Q increases when ESG increases. This could be explained by the different horizons of the measures and other factors affecting the business environment.
... Using laboratory or field experiments, many researchers (e.g., Krishna and Rajan 2009, Zheng et al. 2016, Kalkanci and Buell 2018 have provided empirical evidence for the existence of a green consumer segment, which constitutes a fundamental premise for many analytical models (e.g., Atasu et al. 2008). We base our model of green consumers on Kotchen's (2006) theory (see also, e.g., Bagnoli and Watts 2003), which conceptualizes a green product as the joint provision of private goods that generate consumption Lin, Sun, and Wang: Designing Sustainable Products Under Coproduction Technology value and (impure) public goods that produce social and environmental value. This theory has provided the underpinnings for numerous subsequent studies (e.g., Besley andGhatak 2007, Pecorino 2013). ...
Article
Problem definition: A manufacturer takes raw material with an exogenous quality distribution to make a traditional product and a coproduct using material of quality above and below a well-established standard, respectively. The market consists of traditional consumers, who are only willing to pay for a product’s consumption value, and some environmentally conscious (i.e., green) consumers, who additionally value the product’s material conservation. In this context, we study the firm’s optimal design of its coproduct, that is, its quality and price decisions. Academic/practical relevance: Motivated by emerging conservation-oriented business practices exemplified by companies such as Taylor Guitars, our study informs resource-dependent firms whether and how to design their product line to leverage a coproduct’s environmental value. Our findings also yield important policy implications regarding the conservation of natural resources. Methodology: We formulate and solve the firm’s challenge as a constrained optimization problem, supplemented with extensive sensitivity analyses and robustness tests. Results: When the material cost is intermediate and consumers are not sufficiently green, the firm should position the coproduct without exploiting its environmental value. Otherwise, the firm should position the coproduct by extracting its environmental value from green consumers, in which case the firm may strategically abandon some traditional consumers by leaving their demand unfulfilled. Managerial implications: Quotas and taxation on material supply in general act as policy substitutes. A greener market may inadvertently result in higher resource consumption and waste. Quotas can mitigate such adverse effects.
... Many studies have explored the financial benefits of selling socially responsible products or linking the sale of a firm's product(s) to its socially responsible activities (see, e.g., Bagnoli and Watts, 2004;Baron, 2001;Besley and Ghatak, 2007; and the surveys by Lyon and Maxwell, 2008;Orlitzky et al., 2011). Miller (2008) believes that following the revolutionary changes in financial innovations in the 70 s or 80 s, we can expect more gradual changes in the years to come. ...
Article
Stock market price prediction has improved due to social network activity since social networks can provide useful information, for example, on message sentiment. Few studies have analysed the influence of social networks on the bond market, and even fewer have specifically analysed the influence on the green bond market. By financing environmental projects that promote sustainability, green bonds are becoming increasingly important because of their relationship with major issues, such as climate change and water management. In addition, increases in people's environmental awareness have led companies to enact corporate social responsibility policies and environmentally sustainable projects. This context supports the relevance of this research because although there have been previous studies on green bonds, there is a scarcity of manuscripts that relate green bonds with social media and, more specifically, with investors’ sentiments. Therefore, using panel data analysis, the aim of this study is to analyze how the investor sentiment extracted from social networks influences the green bond market. The results of this manuscript should lead investors and markets to consider social networks as relevant sources of information not only for the equity market but also for the bond market, specifically the green bond market.
... This literature found conflicting results regarding CSR in competitive environments. On the one hand, by reducing the market share and the margin on CSR, competition leads to lower levels of CSR (Bagnoli and Watts 2003;Bennett et al. 2013;Branco and Villas-Boas 2015). On the other hand, research also suggests that CSR investments could be a means to escape competition either by signaling quality or through product differentiation (Conrad 2005;Banerjee and Wathieu 2017;Zhou 2018). ...
Article
Full-text available
Corporate social responsibility (CSR) activities, being viewed as the corporate’s provision of a public good, enable tax exemptions in many economies. We examine, in a monopoly setup with heterogeneous consumers, with social image concerns, whether these tax exemptions are justified. When private and public investments are substitutes, tax exemptions ought to be accorded to CSR activities, and an ad valorem subsidy is welfare superior to a specific one, only when both consumers’ social consciousness and reputational concerns are sufficiently low and/or when the marginal cost on the private good market is sufficiently high. Otherwise, a positive ad valorem tax is welfare improving as it redistributes surplus from the firm to consumers while increasing total welfare in the process. However, when the firm’s CSR investment complements the government’s provision, tax exemptions appear to be suboptimal relative to a positive tax. Specifically, the relative appeal of specific taxes, compared to ad valorem taxes, increases in consumers’ reputational concerns and the value of the optimal tax decreases in their level of altruism.
... Recently, CSR has been directly associated with firms' performance [see among others Vilanova et al., 2009;and Porter and Kramer, 2006]. According to Amin-Chaudhry [2016] and Bagnoli and Watts [2003], firms engage in profit-maximizing CSR, being their lead motivation. Therefore, the proponents of CSR are convinced that investment in CSR enhances the firm's long-term revenue and reputation [Manzano and Fernandez, 2016;Burke and Logsdon, 1996]. ...
... Most papers that adopt the benefit approach and treat abstainers as providing no environmental benefit avoid the coexistence issue by ignoring use value, thus implicitly setting v = 0. Three exceptions are Bagnoli & Watts (2003), Hamilton & Zilberman (2006), and Birg & Voßwinkel (2018), who treat v as positive. All three papers finesse the coexistence issue, however, by writing the private component of utility as θ (v + q) rather than v + θ q. ...
Article
The theoretical literature analyzing eco-label programs has focused mainly on how intricate interactions between firms, eco-label certifiers, and regulators shape these programs’ economic and environmental outcomes. Far less attention has been paid to the consumer side, which has typically been modeled very simply. Meanwhile, empirical researchers in behavioral economics, social psychology, and market research have accumulated a large body of empirical evidence that paints a rich, complex picture of that consumer. In this review, I survey a range of these empirical findings, as well as attempts by theorists to incorporate them in their models. The survey is organized around three themes: ( a) varieties of consumer ignorance, ( b) context dependence of consumer motivations, and ( c) motivational spillover effects across time and people. I also touch on the relative importance of private and public benefits of eco-label programs and on the debate over whether the private benefits should even be counted in welfare. Expected final online publication date for the Annual Review of Resource Economics, Volume 12 is October 5, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
... CSR has been covered in the literature in two major perspectives. One perspective, related to the demand side, considers CSR as a form of vertical differentiation, which is valued by consumers (e.g., Bagnoli and Watts (2003), Alves and Santos-Pinto (2008), Baron (2009), García-Gallego and Georgantzís (2009), Manasakis et al. (2013), and Manasakis et al. (2014)). A second perspective, related to the supply side, relies on the assumption that CSR is incorporated in firms' objective function along with their individual profit (e.g., Goering (2007), Goering (2012), Goering (2014), Lambertini and Tampieri (2012), Lambertini and Tampieri (2015), Lambertini et al. (2016), Fanti and Buccella (2017a), Fanti and Buccella (2017b), and Fanti and Buccella (2017c), among others). ...
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This paper analyses the coordinated effects of Corporate Social Responsibility (CSR) in a setting where firms take into account in their objective function the consumer's welfare in addition to their profits, produce differentiated products and compete in quantities. We consider a symmetric case, where firms have the same level of CSR and an asymmetric case, where firms have different levels of CSR. Our results confirm that assigning a positive weight to consumer surplus makes collusion harder to sustain, as shown in the literature. However, for a sufficiently high level of CSR, collusion sustainability is actually increasing in the degree of product substitutability when firms are CSR-symmetric. When firms are CSR-asymmetric, collusion sustainability is increasing in the degree of product differentiation if products are complements. Further, we show that collusion may be welfare-improving when firms adopt a socially responsible behavior, which provides an interesting background to competition authorities when analysing cartel cases.
... They differ from experience characteristics, where quality is revealed after purchasing (Nelson, 1970). and signalling green products is just one of many ways in which firms compete (see Bagnoli and Watts (2003)). Clearly the market will determine successes and failures, as with any product. ...
... Praca Przedmiot analizy i wnioski Bagnoli & Watts (2003) Przedmiot: Model poziomu dostarczenia dobra publicznego jako produktu ubocznego konkurowania przedsiębiorstw na rynku produktów skierowanych do konsumentów o określonych preferencjach w obszarze ochrony środowiska i sprawiedliwości społecznej i skłonnych do zapłaty za integrację dobra publicznego z nabywanym przez nich na rynku dobrem prywatnym. Wnioski: (a) w warunkach konkurencji Bertranda i Cournota dostawa dobra publicznego w punkcie równowagi rynkowej będzie suboptymalna (b) efektywność dostarczenia dobra publicznego i efektywność dostarczenia dobra prywatnego są względem siebie alternatywne Kotchen (2006) Przedmiot: Model równowagi dobra prywatnego inkorporującego cechy dobra publicznego oferowanego przez przedsiębiorstwa ukierunkowane na maksymalizację zysku (np. ...
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Corporate social responsibility (CSR) implies that corporations integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. CSR’s component parts include: economic, legal, ethical and philanthropic responsibilities. Although social norms and ethics are inherent features of CSR the modern literature of economics and finance focuses mainly on CSR as a firm value-driver. Such narrow view may lead to the deterioration of CSR identity as well as underestimating the role of CSR in building welfare. Thus the purpose of the article is to show the role of CSR in achieving welfare improvements by considering social responsibility as a factor of prosperity and especially as a mechanism of ethically and institutionally anchored self-regulation supporting the organization of market failure correction reducing this welfare. The main thesis is that CSR brings about considerable benefits in terms of allocation efficiency, redistribution and stabilisation. The method employed is the analysis of international literature.
... Measuring the relationship between CSR and corporate nancial performance can be achieved using either the accounting or market-based methods, each with its own strength and challenges. Whereas [1] and [45] choose to perform such measurement using the return on Assets (ROA) ratio, the return on equity (ROE), return on sales (ROS), return on investment (ROI) and pro t margin (PM) nancial ratios [46,47,48] could also be used to measure the pro tability of different companies in establishing a relationship between CSR, nancial performance (FP) and rm size. According to [36,49], these measures help to provide a re ection of the internal e ciency of a company that have been employed. ...
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The objective of this study was to provide empirical evidence from the perspective of corporate social responsibility practices by multinational oil and gas companies in emerging economies on how investments in and disclosure of this practice could enhance financial sustainability. Accounting-based measures on investments, financial performance, disclosures of activities and panel data set on company size (total assets) over a 10-year period (t) were analysed. Findings show that oil firms with interest in emerging economies take key aspects of corporate social responsibility practices seriously. There was significant positive relationship (p = 0.0035 < 0.05) between investment in the practice and sustainability in financial performance. No significant relationship (p = 0.4409 > 0.05) was established between disclosure and financial performance. Functional corporate social responsibility practices were envisaged to yield sustained dividend in terms of a stronger financial outlook for oil and gas companies for poverty alleviation and to achieve key sustainable development goals and targets in emerging economies.
... investor protection is lower in emerging markets (La Porta et al., 1998), allowing managers to more frequently pursue pet projects, such as ESG-related projects (Bagnoli and Watts, 2004;Fernández-Kranz and Santaló, 2010). Second, institutions and rules about environmental and social investments are weaker and less developed, corporate practices are more opaque, markets are less efficient, and relationships are perceived as more corrupt (Kaufmann et al., 2011;Witt et al., 2016). ...
Article
This paper investigates how competition affects firms' environmental, social, and governance (ESG) practices in 22 emerging markets, using a sample of 6,906 firm–year observations from 2011 to 2019. Using a difference-in-differences technique and matched samples with a treated and a control group, I explore exogenous variation in the competitive environment of one country, Brazil, to assess the competition´s causal effect on ESG. The results suggest that firms adjust ESG practices negatively after a shock in competition, contrasting with previous results from developed economies.
... This assertion was supported by the instrumental stakeholder theory, which states that companies with superior social performance tend to perform better financially than their competitors. Several empirical studies have supported the proposition about the development in corporate social responsibility (see Amole, Adebiyi, & Awolaja, 2012;Bagnoli & Watts, 2003;Lev, Petrovits, & Radhakrishnan, 2008;Orlitzky, Schmidt, & Rynes 2003) have supported the proposition about the development in corporate social responsibility. These studies have shown that socially responsible firms are focused not only on increasing current profits but also on fostering future relationships with stakeholders. ...
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Prior to recent time, performance of firms has been solely based on the financial evaluation yardsticks in terms of profits, return on investments, return on assets among others. It is however discovered that in this era of sustainable development, the yardstick for evaluation of firms have included their social and environmental performances. The study therefore examined the effect of corporate social responsibility on financial performance of listed manufacturing firms in Nigeria; by incorporating employee relations and diversity. The study covered consumer goods, basic materials and industrial sectors because of their high dominance in the manufacturing sector. A total of 74 firms form the population; out of which 27 firms were selected using Purposive Sampling Technique. Data were collected from annual reports of selected firms; and Nigerian Stock Exchange factbook for period of 2002-2016. Data collected were analysed using descriptive statistics and ARDL co-integration test; in order to determine the short run and long run effect of the variables. The study found that community relations, employee relation, board diversity and board size have significant positive relationship with return on assets in the short run while only community relation and board diversity are significant in the long run. The study concluded that social factors are significant in explaining financial performance. It is therefore recommended that corporate social responsibility of firms should go beyond community relations alone but extend to other social factors to maximize financial performance.
... In fact, the available empirical evidence documents that consumers' willingness to pay an extra premium for sustainable products has increased over recent decades, perhaps due to subjective sustainable consumerism or to objective attributes of environmentally cleaner goods (Kahn 2007). Complementarily, microeconomic theory suggests a kind of altruism as a plausible rationale for sustainable consumption, according to which consumers partially internalize the overall welfare impact of emissions (e.g., see Andreoni 1990;Bergstrom 1995;Popp 2001;Bagnoli and Watts 2003;Garcia-Gallego andGeorgantzis 2009, andSchinkel andSpiegel 2017). We rely on this literature in considering the presence of consumers who are willing to pay an extra premium for green goods. ...
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This paper examines the welfare consequences of private provision of green goods in output markets with product differentiation. In our setting, consumers can be prone to engage in the consumption of green goods (e.g., from eco-labels or due to some forms of altruism), and firm entry is endogenous. Our analysis shows that firms underinvest in environmentally cleaner products in situations where the social damage from polluting emissions is sufficiently large. However, beyond those situations, we find that firms can underinvest or overinvest depending on effects mediated through firm entry because entry raises output and thus increases consumer participation in the market, but it also reduces private incentives to provide consumers with cleaner products.
... According to [1,5,45,46], measuring the relationship between CSR and corporate nancial performance can be achieved using either the accounting or market-based methods, each with its own strength and challenges. Whereas [1,35,45] choose to perform such measurement using the return on Assets (ROA) ratio, the return on equity (ROE), return on sales (ROS), return on investments (ROI) and pro t margin (PM) nancial ratios [46,47,48] could also be used to measure the pro tability of different companies in establishing a relationship between CSR, nancial performance (FP) and rm size. According to [36,49], these measures help to provide a re ection of the internal e ciency of a company's operations. ...
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The objective of this study is to provide empirical evidence from the perspective of prudent corporate social responsibility practices by oil and gas multinationals in emerging economies on how investments in and disclosure of the practices can enhance financial sustainability. Accounting-based measures on investments, financial performance, disclosures of activities and panel data set on company size (total assets) over a 10-year period (t) were analysed. Findings show that multinationals with interests in emerging economies take key aspects of their corporate social responsibility practices seriously. There was a significant positive relationship (p=0.0035<0.05) between investments in corporate social responsibility practices and sustainability of financial performance. No significant relationship (p=0.4409 > 0.05) was established between disclosure and financial performance. The paper concludes, by supporting the preposition with scientific data, that functional corporate social responsibility practices yield sustained dividend by presenting a stronger financial outlook for multinational oil and gas companies who engage in it. This is prudent for poverty alleviation initiatives and key to achieving the sustainable development goals and targets in emerging economies where they operate.
... Ocran, 2011;Tantalo et al., 2012), the use of CSR in some existing literature as a source of firms' competitive advantage in the construction industry has been marginalized. According to Bagnoli and Watts (2003) and Amponsah-Tawiah and Dartey-Baah (2012), this is attributable to the supposed notion that CSR is a trade-off to the firms' profit. Thus, firms involved in aspects of CSR risk reducing their profit or dividend to investors or shareholders. ...
... Both peer firms' CSR and social trust will influence the focal firm's perceived benefits, but in each case, there are differences in the achieved benefits. For example, in the case of peer firms' CSR, when firms compete in social activities, the value that a firm can extract from CSR is limited (Bagnoli & Watts, 2003;Hess, Rogovsky, & Dunfee, 2002). Hence, when one firm increases its CSR activities, others will perceive a decrease in the value extracted from CSR (Cao, Xia, & Chan, 2016;Ding, Ferreira, & Wongchoti, 2019); that is, they will perceive decreased competition-based benefits. ...
Article
While prior studies have mostly highlighted that firms engage in corporate social responsibility (CSR) because of social norms, we introduce a new perspective by proposing that firms' motive towards CSR is defined largely by the expected utility perspective. Consistent with our proposition, we show that greater social trust in a region has a positive effect on CSR and that this effect is due to the expected utility mechanism rather than the social normative mechanism. We also show that the association between social trust and CSR is stronger when the focal firm's peers carry out high-level CSR and when a firm is strongly influenced by Confucianism. Our findings extend the theoretical research on CSR by showing that a firm's motive towards CSR is based mainly on the expected utility mechanism.
... Some literature in economics and management attempts to distinguish different types of CSR activity to evaluate their contributions to firms' future development (Khan, Serafeim, & Yoon, 2016;Planer-Friedrich & Sahm, 2020). However, most of them are conceptual and qualitative (Bagnoli & Watts, 2003;Baron, 2009). A systematic overview and empirical evidence of the relationship between different types of CSR and innovation are still lacking. ...
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Purpose: In practice, an increasing number of economic entities have begun to consider strategic corporate social responsibility (CSR) as an opportunity to create a win-win situation for the organisation and the society. The existing literature has yet to soundly corroborate the role of strategic CSR in corporate innovation. This study examines the relationship between strategic CSR and innovation. Design/methodology/approach: The empirical regression models are estimated to analyse the data collected from 2817 firms yielding 18 845 firm–year observations from 2001 to 2014 in the United States. Findings/results: The findings indicate that firms with strategic CSR generate more and better innovation outputs. The positive effect is more pronounced when institutional ownership is lower, when firm size is larger, and when product market competition is more intense. In terms of economic consequences, firms with strategic CSR actually have higher commercial value and are less likely to suffer loss from failed innovation. Practical implications: To establish a sustainable relationship with stakeholders and realise the long-term development of business and society, enterprises should engage in strategic CSR in a planned manner based on their own resources and professional expertise. Originality/value: The study sheds light on a growing body of literature that investigates the real consequences of firms’ strategic CSR, and explains the growing recognition of the importance of strategic CSR.
... Competition threatens the profit and even the survival of firms, which in turn requires firms to devote more attention and resources to deal with inter-firm competition. Intense competition results in lower profit margins and thus a decreased ability for firms to make social investments (Bagnoli & Watts, 2003). Prior studies find that intense competition may cause firms to reduce the resources they devote to socially beneficial goals (e.g., Fernández-Kranz & Santaló, 2010). ...
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We examine whether and how CEO foreign experience affects firm’s green innovation. Using a sample of Chinese public companies and hand-collected CEO foreign experience data, we document a positive association between CEO foreign experience and corporate green innovation. Furthermore, consistent with the view that CEOs with foreign experience would play a more significant role when provided with more resources, we find that the positive relationship is more pronounced in less financially constrained firms, in state-owned enterprises, and in less competitive industries. Additional analyses indicate that enhanced environmental ethics and general competency are two potential mechanisms through which CEO foreign experience affects corporate green innovation. Finally, we find that CEO foreign experience is positively related to green innovation quality and internationalization. Collectively, these findings suggest that CEO foreign experience is a significant factor for corporate green innovation in emerging markets.
... According to [1,5,47,48], measuring the relationship between CSR and corporate financial performance can be achieved using either the accounting or market-based methods, each with its own strength and challenges. Whereas [1,37,47] choose to perform such measurement using the return on Assets (ROA) ratio, the return on equity (ROE), return on sales (ROS), return on investments (ROI) and profit margin (PM) financial ratios [48][49][50] could also be used to measure the profitability of different companies in establishing a relationship between CSR, financial performance (FP) and firm size. ...
Article
Full-text available
The objective of this study is to provide empirical evidence from the perspective of prudent corporate social responsibility practices by oil and gas multinationals in emerging economies on how investments in and disclosure of the practices could enhance financial sustainability. Accounting-based measures on investments, financial performance, disclosures of activities and panel data set on company size (total assets) over a 10-year period (t) were analysed. Findings show that multinationals with interests in emerging economies take key aspects of their corporate social responsibility practices seriously. There was a significant positive relationship (p=0.0035 < 0.05) between investments in corporate social responsibility practices and sustainability of financial performance. No significant relationship (p=0.4409 > 0.05) was established between disclosure and financial performance. The paper concludes, by supporting the preposition with scientific data, that functional corporate social responsibility practices yield sustained dividend by presenting a stronger financial outlook for multinational oil and gas companies who engage in it. This is prudent for poverty alleviation initiatives and key to achieving the sustainable development goals and targets in emerging economies where they operate.
... Enrich the productivity of the nation through their social investment education, employment generation, poverty alleviation, and transparency. The latest theories of CSR (Baron (2001), McWilliams and Siegel (2001), Bagnoli and Watts (2003)) said that companies participate in the "profit-max" CSR. That is, companies are considered to be socially responsible because they expect a benefit from this action. ...
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Corporate social responsibility is a philanthropic activity that works for the development of underprivileged people in society. The study examined the factors that are considered as influential stimuli of CSR expenditures. Prais Winsten regression model is applied to a sample of 32 commercial banks from the year of 2011 to 2015 with 160 observations. The study revealed that bank size and one year lag of CSR expenditure positively affect CSR expenditure and are statistically significant. However, bank default risk, shareholders influence, and bank age have a negative and significant effect on CSR expenditures of banks. Therefore, the study's implication is to address the factors properly for the country's socio-economic development. JEL classification numbers: C12, C23. Keywords: CSR, Quantitative Methods, Panel data, Banks, Bangladesh.
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ـدف الدراسـة إلى تفكيـك الإشـكالية الـتي تحـيط بمفهـوم :"مواطنـة الشـركات"، فوضـى معانيـه الناجمـة عنـد اسـتخدامه وتطبيقـه. ولتحقيـق هـذا الهـدف؛ تبنينـا المـنهج التحليلـي المتعـارف عليـه في الفلسـفة التحليليـة و"تفكيـك الإشـكالية المفاهيميـة". توصـلت الدراسـة إلى أن الإشـكالية الرئيسـية تكمـن في أن بعـض الأدبيـات ناقشـت مواطنـة الشـركات مـن منظـور المواطنـة المتعلـق بالالتزامـات، فيمـا ناقشـتها أدبيـات أخـرى مـن زاويـة الحقـوق. وبينمـاكانـت المواطنـة الفرديـة محـددة في إطـار العلاقـة بـين الفـرد وحكومته، لم تكن مواطنة الشركات محددة،كما توصلت الدراسة أيضا لوجود إشـكاليات أخـرى لمواطنـة الشـركات منهـا: إشـكالية مفاهيمية متعلقة بتعدد المفاهيم المستخدمة إما بشكل مرادف لمفهوم مواطنة الشركات أو مختلف عنه، وإشكالية فوائـد اسـتخدامه ومضاره وقياسه، وإشكالية عند بروز المواطنة العالمية للشركات، الشركات ينبغي إلزامها بمسـؤوليا ا عـبر وسـائل قانونيـة او بمبـادرات طوعية.
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Corporate environmental investment decision-making behavior is influenced by both the external factor of government green policy and the internal factor of corporate social responsibility. This paper empirically examines the effects of green policies and corporate social responsibility on corporate environmental investment using a fixed-effects panel data model with a sample of Chinese listed companies in the heavy pollution industry from 2013-2019 and further analyzes the possible moderating role played by market competition. The results show that: (1) Green policy and corporate environmental investment have an inverted “U-shaped” relationship, which indicates that there is a ”degree” limit to the impact of green policy on corporate environmental investment. (2) There is a U-shaped relationship between green investment and environmental governance green policy tools and corporate environmental investment, while infrastructure green tool and corporate environmental investment in an inverted U-shaped relationship (3) Corporate social responsibility and the scale of its environmental investment has a positive relationship, green policy and corporate social responsibility have a joint effect corporate environmental investment. (4) The higher the degree of market competition, the more significant the effect of green policy on corporate environmental investment.
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We study in this paper the effect of the type of information provided by an ecolabel. For this purpose, in the framework of a model of vertical differentiation, we compare the effects of a partial information label (Type I) and a complete information label (Type III) on firms' profits, industry profit, consumers' surplus, environmental damage and social welfare. A partial information label indicates that the environmental quality of a good exceeds some given threshold. The authority issuing a partial information label chooses its labeling criteria while maximizing the social welfare. A complete information label indicates the exact environmental quality chosen by firms. We prove that while a partial information label always improves the social welfare and deteriorates the green firm profit compared to a complete information label, the comparison between the two types of ecolabel in terms of the brown firm's profit, the industry's profit, the consumers surplus and the environment depend in a non-obvious way on the marginal cost of quality and on the environmental sensitivity to quality.
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We analyze the private provision of discrete public good games with incomplete information and continuous contributions. To use the terminology of [Admati and Perry, Review of Economic Studies 58 (1991) 259], we consider contribution and subscription games. In the former, contributions are not refunded if the project is not completed, while in the latter they are. We show that the contribution game has only the strong free riding equilibria if cost is high enough. Thus, in this range of cost, the subscription game is superior to the contribution game. We present several interesting equilibria of both types of games and give a new proof of the ex-post inefficiency of the contribution and the subscription games.
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I examine games involving private contributions to a public good and show that less of the public good will be supplied if agents move sequentially than if they move simultaneously. If the agents bid for the right to move first, the agent who values the public good least will win. If each agent chooses the rate at which he will subsidize the other agent's contributions, the subsidies that support the Lindahl allocation are the unique equilibrium outcome. I also describe two related subsidy-setting games that yield Lindahl allocations in n-person games with general utility functions.
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This paper proposes the following incentive scheme for the private provision of public goods: government should reward and penalize deviations from the mean contribution by an appropriate factor. This makes efficient contribution individually rational even if individuals see through the government budget constraint.
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A model in which public goods can be provided by both donations and joint production with a private good is investigated. Its properties are compared with models of public good provision with only one method of provision. Whilst it has some features in common with the standard model of public good provision, there are good grounds for placing more emphasis on the joint production model.
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This paper presents a perspective on a previously studied heuristic tree search algorithm for the NP-complete “3SAT” satisfiability problem, which synthesizes results by Brown, Franco, Purdom, and others. It is shown that when an a priori calculation indicates a random, nontrivial 3SAT formula is very likely unsatisfiable, then the heuristic algorithm is expected to prove unsatisfiability in a search tree with size essentially independent of the problem size, and bounded by a constant that depends only on the ratio of the number of clauses to the cube of the number of variables.
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In this paper, a dynamic model of the provision of a public good with incomplete information is developed. For a finite population, in addition to the standard underprovision type of results, inefficiency occurs because of a delay in contributions. For an infinite population, although delay may disappear, underprovision remains so that equilibrium is still inefficient. Policy implications of these results are described, emphasis being put on possible government intervention with incomplete information. Copyright 1992 by University of Chicago Press.
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Economists have long believed that private provision of public goods will be inefficient, though recently some have argued that altruism may mitigate the inefficiencies. Without altruism, agents contribute to the point where marginal cost equals their private marginal benefits. With altruism, they contribute more and hence are closer to the point where marginal cost and total marginal benefits are equated. In an earlier paper (Bagnoli and Lipman, 1989), we showed that private provision need not be inefficient. In a very natural model of private provision without altruism, we showed that the set of (undominated perfect) equilibrium outcomes is identical to the core. Here we consider the effect of altruism on private provision. Altruism essentially creates more public goods because the well-being of others becomes a public good. We show that our model of private provision still has efficient equilibria under a wide variety of circumstances. Interestingly, the equilibria may be inefficient when agents are concerned about the effect of private provision on the distribution of wealth. Intuitively, the game we consider is a very powerful instrument for efficient private provision, but must be supported by other instruments if the set of public goods is expanded too far.
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The rationale of ecolabelling is to enable firms to reap the willingness-to-payfor the environmental attributes of goods by helping consumers toidentify ``green'' products. By so doing, ecolabelling is expected tostimulate spontaneous environmental innovation and to reduce aggregatedpollution. Our analysis however outlines situations under whichecolabelling could induce perverse effects, namely increased investment inconventional technologies before the labels are awarded, and examineswhether restricting the issue of labels could constitute an antidote. Copyright Kluwer Academic Publishers 2001
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This paper concerns the pattern of contributions to a joint project when commitments and enforceable contracts are not available. We analyse a game in which partners alternate in making contributions to the project until the project is completed. Contributions are sunk when they are made. The game has a unique subgame perfect equilibrium path, which is inefficient in the sense that socially desirable projects may not be completed. By contrast, in a “subscription game” in which the cost of the contribution is borne only if and when the contributions committed to the project cover its cost, the outcome is efficient.
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We introduce adaptive learning behavior into a general-equilibrium life-cycle economy with capital accumulation. Agents form forecasts of the rate of return to capital assets using least-squares autoregressions on past data. We show that, in contrast to the perfect-foresight dynamics, the dynamical system under learning possesses equilibria that are characterized by persistent excess volatility in returns to capital. We explore a quantitative case for theselearning equilibria. We use an evolutionary search algorithm to calibrate a version of the system under learning and show that this system can generate data that matches some features of the time-series data for U.S. stock returns and per-capita consumption. We argue that this finding provides support for the hypothesis that the observed excess volatility of asset returns can be explained by changes in investor expectations against a background of relatively small changes in fundamental factors.
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This paper provides a theory of private politics in which an activist seeks to change the production practices of a firm for the purpose of redistribution to those whose interests it supports. The source of the activist's influence is the possibility of support for its cause by the public. The paper also addresses the issue of corporate social responsibility by distinguishing among corporate redistribution as motivated by profit maximization, altruism, and threats by the activist. Private politics and corporate social responsibility not only have a direct effect on the costs of the firm, but also have a strategic effect by altering the competitive positions affirms in an industry. From an integrated-strategy perspective the paper investigates the strategic implications of private politics and corporate social responsibility for the strategies of rival firms when one or both are targets of an activist campaign. Implications for empirical analysis are derived from the theory. Copyright (c) 2001 Massachusetts Institute of Technology.
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This paper contains a theoretical exploration of the potential effects of an information-supplying activist on a market for credence goods. Using a non-cooperative game-theoretic model with incomplete information, we find that such an activist can alter the decisions of firms and consumers and enhance the social welfare of market exchange. We also find that an activist can support equilibria in which firms differentiate their products on some credence characteristic even though this characteristic remains unknown to the consumer both prior and subsequent to consumption. In general, our analysis has several implications for the study of private collective action in markets. Copyright (c) 2001 Massachusetts Institute of Technology.
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The possibility of measuring and comparing sustainability performance is generally taken for granted in management studies and practices based on the evaluation, selection and ranking of the supposedly best companies in the field. The purpose of this article is to question this basic assumption by analyzing the comparability of sustainability performance through a systematic review of 12 mining company reports using Global Reporting Initiative (GRI) guidelines. The analysis of information based on 92 GRI indicators raises serious questions concerning the hypothesis of measurability and comparability of sustainability performance, drawing attention to the main reasons that make it very difficult if not impossible to establish a credible and justifiable classification among organizations. La possibilité de mesurer et de comparer les performances de développement durable est généralement prise pour acquise tant dans les recherches en gestion que dans les pratiques de classement ou de sélection des meilleures entreprises dans ce domaine. L’objectif de cet article est d’examiner cette hypothèse de mesurabilité et de comparabilité des performances de développement durable à partir de l’étude systématique de 12 rapports d’entreprises minières utilisant le même guideline du Global Reporting Initiative (GRI). L’analyse des informations relatives aux 92 indicateurs du GRI utilisés remet en cause l’hypothèse de comparabilité des performances de développement durable en mettant en lumière les principales raisons qui rendent pratiquement impossible l’établissement d’un classement crédible et justifiable entre les entreprises.
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Charities frequently announce contributions of donors as they accrue. Doing so induces donors to play a sequential-move rather than simultaneous-move game. We examine the conditions under which a charity prefers such sequential play. It is known that if donors only value contributions through their effect on the total provision of a public good, then the charity will not announce contributions sequentially. However, with more general utility functions that include additional effects such as warm-glow or snob appeal, the charity may benefit from announcing contributions.
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The research agendas of psychologists and economists now have several overlaps, with behavioural economics providing theoretical and experimental study of the relationship between behaviour and choice, and hedonic psychology discussing appropriate measures of outcomes of choice in terms of overall utility or life satisfaction. Here we model the relationship between values (understood as principles guiding behaviour), choices and their final outcomes in terms of life satisfaction, and use data from the BHPS to assess whether our ideas on what is important in life (individual values) are broadly connected to what we experience as important in our lives (life satisfaction).
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It is known that a discrete public good is efficiently provided in the subset of 'undominated equilibria' (those not Pareto dominated within the set of Nash equilibria). We make the cost of the discrete public good uncertain at the time the contribution game is played. This can lead to strikingly different results. Often, the public good is underprovided in any Nash equilibrium and there is a unique undominated equilibrium. These results hold for some distributions when there is arbitrarily little uncertainty and always when there is enough uncertainty.
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This paper analyzes the provision of discrete public goods when individuals have altruistic preferences which others do not precisely know. The problem is formulated and solved as a Bayesian game. In contrast to standard social psychological approaches, based on such natural language terms as greed, fear, and trust, the Bayesian approach provides a rigorous mathematical treatment of social participation. This theory is shown to make strong testable predictions that can integrate data collected across a wide variety of natural and experimental settings. The altruism model is shown to be supported by existing experimental data on binary voluntary contribution games.
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When viewed as taxes, lotteries are routinely criticized as being both inequitable and inefficient. But is this an entirely fair comparison? Frequently lotteries are used in lieu of voluntary contributions by private charities and governments when taxes are not feasible. When heterogeneous individuals with quasi-linear preferences participate in lotteries whose proceeds will be used to fund a public good, we find that, relative to voluntary contributions, wagers in the unique lottery equilibrium (a) increase the provision of the public good, (b) are welfare improving, and (c) provide levels of the public good close to first-best as the lottery prize increases.
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In this short paper I adopt the public choice school paradigm of modeling a government in order to compare its performance with that of the market in the standard model of the provision of public goods. Private provision is represented by the Cournot-Nash equilibrium in individual contributions. Public provision incorporates rent seeking, whereby some of the aspects of the allocation are determined indirectly by influence activities of the interested parties. Thus, both allocation procedures yield inefficiency, and the question is which procedure results in a greater amount of inefficiency: private provision with its free riding incentives, or public provision with its rent seeking incentives. The results indicate that public provision may well be preferred to private provision of public goods. Thus, superiority of private provision is not guaranteed even in the case of a non-benevolent government. Copyright 1993 by Royal Economic Society.
Article
This paper analyzes the provision of discrete public goods when individuals have altruistic preferences which others do not precisely know. The problem is formulated and solved as a Bayesian game. In contrast to standard social psychological approaches, based on such natural language terms as greed, fear, and trust, the Bayesian approach provides a rigorous mathematical treatment of social participation. This theory is shown to make strong testable predictions that can integrate data collected across a wide variety of natural and experimental settings. The altruism model is shown to be supported by existing experimental data on binary voluntary contribution games.
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Standard economic intuition would say that private provision of public goods will be inefficient due to free-rider problems. This view is in contrast to the results in the literature on full implementation where it is shown that (under certain conditions) games exist which only have efficient equilibria. The games usually used to demonstrate existence are quite complex and seem “unnatural” possibly leading to the perception that implementation requires a central authority to choose and impose the game. In a simple public goods setting, we show that a very natural game—similar to one often used elsewhere in the literature to model private provision—in fact fully implements the core of this economy in undominated perfect equilibria. More specifically, we consider a complete information economy with one private good and two possible social decisions. Agents voluntarily contribute any non-negative amount of the private good they choose and the social decision is to provide the public good iff contributions are sufficient to pay for it. The contributions are refunded otherwise. The set of undominated perfect equilibrium outcomes of this game is exactly the core of the economy. We give some extensions of this result, discuss the role of perfection and alternative equilibrium notions, and discuss the intuition and implications of the results.
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In this paper the problem of optimal derivative design, profit maximization and risk minimization under adverse selection when multiple agencies compete for the business of a continuum of heterogenous agents is studied. In contrast with the principal-agent models that are extended within, here the presence of ties in the agents' best-response correspondences yields discontinuous payoff functions for the agencies. These discontinuities are dealt with via efficient tie-breaking rules. The main results of this paper are a proof of existence of (mixed-strategies) Nash equilibria in the case of profit-maximizing agencies, and of socially efficient allocations when the firms are risk minimizers. It is also shown that in the particular case of the entropic risk measure, there exists an efficient "fix-mix" tie-breaking rule, in which case firms share the whole market over given proportions.
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This paper is concerned with the coexistence of company-owned units and franchised units in business format franchising and their different contractual arrangements. Drawing insights from case studies that indicate both the development and the maintenance of company-wide brand names and unit-specific sales activities are crucial to a franchise company, we construct a multitask model to account for such contract mixing in franchising. Intuitively, low-powered contracts are offered to some managers to induce effort for brand-name development and maintenance, while high-powered contracts are offered to the remaining managers to elicit sales activity and capture the beneficial effect of the company brand name. Franchising can thus be viewed as an organizational agreement for production involving brand-name products and services. Copyright (c) 2000 Massachusetts Institute of Technology.
Article
We consider the dynamic private provision of funds to projects that generate public benefits. Participants have complete information about the environment, but imperfect information about individual actions: each period they observe only the aggregate contribution. Each player may contribute any amount in any period before the contributing horizon is reached. All Nash equilibrium outcomes are characterized. In many cases they are all also perfect Bayesian equilibrium outcomes. If the horizon is long, if the players' preferences are similar, and if they are patient or the period length is short, perfect Bayesian equilibria exist that essentially complete the project. In some of them the completion time shrinks to zero with the period length—efficiency is achieved in the limit.
The Pure Theory of Public ExpenditureSequential Contributions to Public Goods Journal of Public Econom-icsA Solution to the Problem of Externalities When Agents Are Well-Informed
  • P Samuelson
  • H Varian
Samuelson, P., 1954, “The Pure Theory of Public Expenditure,” Review of Economics and Statistics, 36, 387–389. Varian, H., 1994a, “Sequential Contributions to Public Goods,” Journal of Public Econom-ics, 53, 165–186. ——, 1994b, “A Solution to the Problem of Externalities When Agents Are Well-Informed,” American Economic Review, 84, 1278–1293. Vicary, S., 1997, “Joint Production and the Private Provision of Public Goods,” Journal of Public Economics, 63, 429–445
Public Goods: A Survey
  • J Ledyard
Ledyard, J., 1995, "Public Goods: A Survey," in J. Kagel and A. Roth, eds., Handbook of Experimental Economics, Princeton University Press.
Under Bertrand competition, (1) if there are no sales of the l-version of the private good, then no (and thus too few) units of the public good are provided; (2) if there are monopolistic sellers of both versions, some, but too little
  • Ledyard
Ledyard (1995) is an excellent survey. © 2003 Massachusetts Institute of Technology. PROPOSITION 1: Under Bertrand competition, (1) if there are no sales of the l-version of the private good, then no (and thus too few) units of the public good are provided; (2) if there are monopolistic sellers of both versions, some, but too little, of the public good is provided;
Palfrey and Rosenthal
  • See
  • Example
  • Hirshleifer
  • Bergstrom
See for example, Hirshleifer (1983), Cornes and Sandler (1984, 1994), Palfrey and Rosenthal (1984, 1988), Bergstrom et al. (1986), Andreoni (1989, 1990), Bagnoli and Lipman (1989, 1992), Nitzan and Romano (1990), Admati and Perry (1991), Gradstein (1992, 1993), Jackson and Moulin (1992), Varian (1994a, 1994b), Luski and Wettstein (1994), Falkinger (1996), Vicary (1997), Marx and Matthews (2000), Morgan (2000), Cason and Gangadharan (2002), Menezes et al. (2001), and Romano and Yildirim (2001).