DP16564 Strategic Leadership in Corporate Social Responsibility

Author(s): Rui Albuquerque, Luís M B Cabral
Publication Date: September 2021
Date Revised: September 2021
Keyword(s): clean-energy technology, commitment, Corporate social responsibility, Externalities, leadership, mission statement, stakeholder model, stockholder model, Supply Chain, Wage setting
JEL(s): D24, G32, G34, L20, M14
Programme Areas: Financial Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16564

We propose a strategic theory of Corporate Social Responsibility (CSR). Shareholder maximizers commit to a mission statement that extends beyond firm value maximiza- tion. This commitment leads firms (either product market competitors or complementors along the value chain) to change their actions in ways that ultimately favor shareholders. We thus provide a formal analysis of the "doing well by doing good" adage. We also pro- vide conditions such that the mission statement game has the nature of a pure coordination game. Our framework thus provides a natural theory of firm leadership in a CSR context: by selecting a CSR mission statement, a first mover effectively leads the industry to a Pareto optimal equilibrium.