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A Positive Theory of Moral Management, Social Pressure, and Corporate Social Performance

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  • Baron, David P.

    (Stanford U)

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    Abstract

    This paper provides a theory of firm behavior motivated by moral duty, self-interest, and social pressure. A morally-managed and a self-interested firm compete in a market in which their corporate social performance (CSP) provides product differentiation. In addition to acting as consumers, citizens have warm glow preferences for personal giving to social causes, holding shares in firms providing CSP, and contributing to social pressure to increase CSP. Social pressure is delivered by an activist NGO funded by voluntary contributions by citizens. The activist selects a target, demands social action by the target, and threatens harm. The target can fight the activist campaign, but both parties have an incentive to bargain to a resolution. The model charaterizes an equilibrium in the product market, the capital market, and the market for social pressure. The equilibrium establishes a price for CSP and for activist-induced social action. The theory provides predictions of the market values of firms, the prices of products, firm profits, target selection, contributions to the activist, and the amount of CSP. For example, if citizens do not distinguish between morally-motivate CSP and CSP induced by social pressure, the activist is more likely to target the softer, morally-motivated firm. Higher quality activists are better funded, target self-interested firms, and obtain greater social action. Lower quality activists target morally-managed firms.

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    File URL: http://gsbapps.stanford.edu/researchpapers/detail1.asp?Document_ID=2829
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    Bibliographic Info

    Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1940.

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    Date of creation: Jun 2006
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    Handle: RePEc:ecl:stabus:1940

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    Cited by:
    1. Gupta, Sonam & Innes, Robert, 2008. "Determinants and Impact of Private Politics: An Empirical Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6238, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Robert Innes & George Frisvold, 2009. "The Economics of Endangered Species," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 485-512, 09.
    3. Thomas P. Lyon & John W. Maxwell, 2008. "Corporate Social Responsibility and the Environment: A Theoretical Perspective," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 240-260, Summer.

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