The Assignment of a CSR Level of Action: Rule vs Discretion

Socially responsible behaviors represent a growing concern for consumers, employees, investors, firms. Beyond their economic impact, companies are made accountable and responsible for the social, the environmental incidence of their activities. Their governance, their processes, the security of their products and the working conditions they offer are more and more carefully examined. The question of the duty of vigilance concerning company activities seem of particular interest in this context. Public policies, especially through regulation, seek to limit (or even avoid) some of the negative impacts that can be related to firms' activity and choice. Yet, many drawbacks can prevent regulation to succeed : lack of information or of expertise, capture by interest groups... As a by-product it is worth examining whether some decisions must be taken by regulators or should rather be delegated to firms. This paper tries to tackle this issue. Through a mechanism without transfer approach in a setting involving information asymmetries, we will study under which conditions the decision is best assigned to the regulator. We show that for relatively low values of the private parameter, a bonding rule will be preferred, more strongly if asymmetry of information is introduced w.r.t. the knowledge the firm will get from the representative consumer. The divergence between the decision-maker and the firm strengthens and less communication takes place, which corresponds to a lower degree of delegation granted to companies. Thus, the optimal scheme is made of a combination of a rigid policy and a more flexible one over significant values of the private parameter.