Compliance with socially responsible norms of behavior: reputation vs. conformity

Virginia Cecchini Manara () and Lorenzo Sacconi ()
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Virginia Cecchini Manara: University of Trento
Lorenzo Sacconi: University of Milan

No wp73, Econometica Working Papers from Econometica

Abstract: The Social Responsibility of Business usually involves self-regulation, which entails spontaneous compliance with social norms or standards that are not imposed by hard law. In this paper we discuss the mechanisms that lead economic agents to comply with socially responsible norms that are not legally enforced, and do not coincide with profit, or self-interest, maximization. Companies exist because individuals need to cooperate and some institutions can facilitate cooperation, but at the same time these institutions may turn into places where unfair distributions are amplified and cooperative behaviours and motivations disrupted. The agents who decide to organize themselves into firms are usually motivated by the need to earn some benefit from mutual cooperation: since they have limited knowledge and bounded rationality, team production can highly improve their results. Therefore the main motivation to enter an organization is to gain from cooperation; but this also brings problems of how to divide the surplus that is generated and we find conflicts on the attribution of benefits among stakeholders, with a particular problem of abuse of authority by those who hold power. One of the drivers of socially responsible behaviour is the quest for reputation, which in turn induces a cooperative response from the stakeholders. This can be described in game-theoretical terms with a repeated Trust Game between a trustor (the stakeholder) and a trustee (the management of the firm). The problem with reputation is that it is compatible with multiple equilibria, included the one in which stakeholders always trust the firm, and the firm often abuses this trust. This leads to consider an alternative mechanism for norm compliance: conformity and reciprocity that derive from an impartial agreement among stakeholders. The present work analyses in depth the role of an agreement on cognitions and motivations, grounding on insights from psychology, game theory and experimental findings.

Keywords: corporate culture; CSR; social contract; agreement; trust game (search for similar items in EconPapers)
JEL-codes: C72 D91 L14 M14 (search for similar items in EconPapers)
Pages: 20
Date: 2019-08
New Economics Papers: this item is included in nep-cdm, nep-evo, nep-exp, nep-gth, nep-hme, nep-hpe and nep-hrm
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