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Socially Responsible Investment: Ex-ante Contracting or Ex-post Bargaining?

Author

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  • Meg Adachi-Sato

    (Faculty of Business Administration and Accountancy, Khon Kaen University, THAILAND and Research Institute for Economics and Business Administration, Kobe University, JAPAN)

Abstract

This paper shows how a socially and environmentally aware firm principal can motivate a profit-oriented manager to pursue positive environmental, social, and governance (ESG) outcomes. In the model, the manager produces a verifiable output that is detrimental to ESG but also engages in an unverifiable output that promotes ESG. I show that an ex-post bargaining contract is preferred to an ex-ante commitment contract if the unverifiable output substantially improves ESG or if there is a large negative externality. The paper also demonstrates how social impact bonds can be more effective than short-term debt when used to finance social programs.

Suggested Citation

  • Meg Adachi-Sato, 2021. "Socially Responsible Investment: Ex-ante Contracting or Ex-post Bargaining?," Discussion Paper Series DP2021-20, Research Institute for Economics & Business Administration, Kobe University, revised Feb 2023.
    • Handle: RePEc:kob:dpaper:dp2021-20
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2021-20.pdf
    File Function: Revised version, 2023
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    References listed on IDEAS

    as
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    Cited by:

    1. Meg Adachi-Sato & Hiroshi Osano, 2023. "Sustainable Investing Under Delegated Investment Management," Discussion Paper Series DP2023-01, Research Institute for Economics & Business Administration, Kobe University, revised May 2023.

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    More about this item

    Keywords

    Socially responsible investment; ESG; Multitask; Holdup; Incomplete contracts; Social impact bonds;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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