DP18121 Strategic Corporate Purpose
We propose a theory of strategic Corporate Social Responsibility (CSR). Value maximizing shareholders play an industry CSR game where they can opt for an objective function that extends beyond shareholder value, thus conditioning other strategic firm de- cisions. The theory provides a formalization of the “doing well by doing good” adage in an industry setting. We develop conditions such that the CSR game is a pure coordination game, which provides a natural and novel theory of strategic leadership in CSR: By com- mitting to a CSR objective function, a first mover leads the industry to a Pareto superior equilibrium. The theory can rationalize recent evidence on correlated industry-wide CSR adoption, and carries implications for competition policy.
