Socially Responsible Investment: Ex-ante Contracting or Ex-post Bargaining?

Meg Adachi-Sato
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Meg Adachi-Sato: Faculty of Business Administration and Accountancy, Khon Kaen University, THAILAND and Research Institute for Economics and Business Administration, Kobe University, JAPAN

No DP2021-20, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This paper shows how a socially and environmentally aware firm principal can motivate a profit-oriented manager to pursue positive environmental, social, and governance (ESG) outcomes. In the model, the manager produces a verifiable output that is detrimental to ESG but also engages in an unverifiable output that promotes ESG. I show that an ex-post bargaining contract is preferred to an ex-ante commitment contract if the unverifiable output substantially improves ESG or if there is a large negative externality. The paper also demonstrates how social impact bonds can be more effective than short-term debt when used to finance social programs.

Keywords: Socially responsible investment; ESG; Multitask; Holdup; Incomplete contracts; Social impact bonds (search for similar items in EconPapers)
JEL-codes: D86 G11 G23 M12 M14 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2021-09, Revised 2023-02
New Economics Papers: this item is included in nep-cta, nep-env, nep-gth and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2021-20.pdf Revised version, 2023 (application/pdf)

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