Socially responsible firms and endogenous choice of strategic incentives

Michael Kopel and Björn Brand

Economic Modelling, 2012, vol. 29, issue 3, 982-989

Abstract: In this paper we are analyzing a mixed quantity-setting duopoly consisting of a socially concerned firm and a profit-maximizing firm. The socially concerned firm considers one group of stakeholders in its objective function and maximizes its profit plus a share of consumer surplus. Both firms have the option to hire a manager who determines the production quantity on behalf of the firm's owner. We find that in the subgame-perfect equilibrium of this game both firms hire a manager and delegate the production choice. If the unit production costs of the firms are similar, then the socially concerned firm has a higher market share and even higher profit. Interestingly, we observe that the relationship between the share of consumer surplus taken into account by the socially concerned firm and its profit is non-monotonic. As the share increases, the socially concerned firm's profit first increases and then decreases. The conclusion is that it pays off to take stakeholder interests into account, but not too much.

Keywords: Socially concerned firms; Corporate social responsibility; Strategic incentives; Mixed oligopoly (search for similar items in EconPapers)
JEL-codes: D21 L13 L22 M14 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (144)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:3:p:982-989

DOI: 10.1016/j.econmod.2012.02.008

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