What Do Shareholders Want? Consumer Welfare and the Objective of the Firm

Keith Ericson

No 32064, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Shareholders want a firm’s objective function to place some weight on consumer welfare, motivated by both self-interest and altruism. Firms have a unique technology for improving consumer welfare: lowering inefficient price markups. Optimal pricing formulas can account for shareholders’ marginal rate of substitution between profits and consumer welfare. Calibrations show shareholders should place non-trivial weights on consumers. A survey experiment with a representative sample shows how shareholders would vote on resolutions giving strategic guidance to firms. Only 7% would vote for pure profit maximization. The median individual is indifferent between $0.44 in profits or $1 in consumer surplus.

JEL-codes: D21 D91 G30 L21 M14 (search for similar items in EconPapers)
Date: 2024-01
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