Private versus public companies with strategic CSR

Abstract

We analyze the effects of strategic Corporate Social Responsibility (CSR) on social welfare in an industry where firms are owned by consumers (publicly owned) and CSR commitment takes the form of a fraction of the consumer surplus into the firms’ objective function. We compare this market configuration with the standard case of firms owned by entrepreneurs (privately owned). In line with the empirical evidence, consumers’ ownership gives an incentive to adopt a socially responsible, welfare improving statute. While privately-owned companies are limited in the level of social concern to implement, publicly-owned companies are not, and CSR is welfare-improving for any level of social concern. Surprisingly, a market configuration of publicly-owned CSR companies decreases welfare compared to an oligopoly of privately-owned CSR companies. The analysis is then extended by considering asymmetric oligopolies with different company types.