Exit vs. Voice

Eleonora Broccardo, Oliver D. Hart and Luigi Zingales

No 302, Working Papers from The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State

Abstract: We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies that generate externalities. We show that if the majority of investors are socially responsible, voice achieves the socially desirable outcome, while exit does not. If the majority of investors are purely selfish, exit is a more effective strategy, but neither strategy generally achieves the first best. We also show that individual incentives to join an exit strategy are not aligned with social incentives, and hence exit can lead to a worse outcome than if all individuals are purely selfish.

Keywords: Exit; Voice; Social Responsibility; Divestment; Boycott; Engagement (search for similar items in EconPapers)
JEL-codes: D02 D21 D23 D62 D64 H41 L21 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cbscwp:302

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