The Cost of Corporate Social Responsibility: The Case of the Community Reinvestment Act
Donald Vitaliano () and
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Gregory Stella: The University at Albany, Albany, NY, USA
Rensselaer Working Papers in Economics from Rensselaer Polytechnic Institute, Department of Economics
A Data Envelopment Analysis (DEA) cost minimization model is employed to estimate the cost to thrift institutions of achieving a rating of 'Outstanding' under the anti-redlining Community Reinvestment Act, which is viewed as an act of voluntary Corporate Social Responsibility (CSR). There is no difference in overall cost efficiency between 'Outstanding' and minimally compliant 'Satisfactory' thrifts. However, the sources of cost inefficiency do differ, and an 'Outstanding' rating involves annual extra cost of $7.4 million or, 1.3% of total costs. This added cost is the shadow price of CSR since it is not an explicit output or input in the DEA cost model. Before and After-tax rates of return are the same for the 'Outstanding' and 'Satisfactory' thrifts, which implies a recoupment of the extra cost. The findings are consistent with CSR as a management choice based on balancing marginal cost and marginal revenue. An incidental finding is that larger thrifts are less efficient
JEL-codes: M14 G28 D21 (search for similar items in EconPapers)
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Journal Article: The cost of Corporate Social Responsibility: the case of the Community Reinvestment Act (2006)
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