DP15176 Exit vs. Voice

Author(s): Eleonora Broccardo, Oliver Hart, Luigi Zingales
Publication Date: August 2020
Keyword(s): Boycott, Divestment, engagement, exit, Social Responsibility, voice
JEL(s): D02, D21, D23, D62, D64, H41, L21
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15176

We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies. We show that in a competitive world exit is less effective than voice in pushing firms to act in a socially responsible manner. Furthermore, we demonstrate that individual incentives to join an exit strategy are not necessarily aligned with social incentives, whereas they are when well-diversified investors are allowed to express their voice. We discuss what social and legal considerations might sometimes make exit preferable to voice.