Corporate social responsibility, profits and welfare with managerial firms

Abstract

This paper analyses the equilibrium outcomes in a duopoly market where firms follow corporate social responsibility (CSR) behaviours under managerial delegation. It is shown that in the subgame perfect Nash equilibrium of the game, both firms emerge as CSR-type, and the firms’ profitability (resp. the welfare of consumers and society) are beneficiated (resp. harmed) by the CSR behaviour. This result is in sharp contrast with the conventional result (established under non-managerial firms) that the higher the CSR sensitivity to consumer surplus, the lower (resp. higher) the firms’ profitability (resp. the consumer surplus and social welfare).