Socially Responsible Investment: Ex-ante Contracting or Ex-post Bargaining?
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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
This paper shows how a socially and environmentally aware firm principal can motivate a profit-oriented manager to pursue 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 to finance social programs.
Keywords: Socially responsible investment; ESG; Multitask; Hold-up; Incomplete contracts; Social impact bonds; Sustainability-linked bonds (search for similar items in EconPapers)
JEL-codes: D86 G11 G23 M12 M14 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2021-09, Revised 2022-05
New Economics Papers: this item is included in nep-cta, nep-env, nep-gth and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:dp2021-20
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