Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare

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 welfareenhancing 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: 2022-02-28
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Published in Journal of Political Economy, 2022, 130 (11), pp.58. ⟨10.1086/720459⟩

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Journal Article: Caring or Pretending to Care? Social Impact, Firms’ Objectives, and Welfare (2022)
Working Paper: Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03791920

DOI: 10.1086/720459

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