Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare (former title: Social Responsibility and Firm's Objectives)

Michele Fioretti

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Abstract: Many firms claim that "social impact" influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures because consumers' willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfare enhancing tax with limited pass-through.

Keywords: Benefit corporation law; Social impact; Welfare analysis; Firms' objectives; Externalities; Structural estimation (search for similar items in EconPapers)
Date: 2022-02-21
New Economics Papers: this item is included in nep-cfn and nep-law
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03393065v2
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Working Paper: Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare (former title: Social Responsibility and Firm's Objectives) (2022)
Working Paper: Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare (former title: Social Responsibility and Firm's Objectives) (2022)
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