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Global Supply Chain Sustainability: the Role of Non-governmental Enforcement Mechanisms

Author

Listed:
  • Michela Limardi

    (Université de Lille - RIME lab et Université de Paris 1 - Centre d'Eonomie de la Sorbonne)

  • Francesca Battista

    (College of Liberal Arts and Human Sciences - Virginia Tech)

Abstract

Non-governmental organizations (NGOs) exert pressure on multinational enterprises (MNE) to force the application of social and environmental standards for subcontractors in developing countries. Non-governmental regulation relies on voluntary standards defined by the NGOs,or by the MNE themselves. This leads to an uncertainty and social regulation. In this respect, external pressure from NGOs constitutes a reputational risk for the company. MNEs, in turn, try to manage those risks by increasingly monitoring the environmental and social impact of their global suppliers. Two forms of non-governmental enforcement currently prevail: warning (i.e.disclosing information of a violation to the company) versus immediate punishment (i.e. penalizing a company without disclosing information). A theoretical model is developed to determine whether disclosing (or not) information to the MNE about reputational risk is more effective. The results demonstrate that MNEs with a low reputation (or a high degree of out-sourcing) will have a higher incentive to conduct inspections of its global suppliers in a warning regime. Conversely, when MNE visibility is high, disclosing information in advance does not provide additional incentives

Suggested Citation

  • Michela Limardi & Francesca Battista, 2022. "Global Supply Chain Sustainability: the Role of Non-governmental Enforcement Mechanisms," Documents de travail du Centre d'Economie de la Sorbonne 22013, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:22013
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    File URL: http://mse.univ-paris1.fr/pub/mse/CES2022/22013.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Corporate Social Responsibility; Non-governmental organizations (NGOs); Enforcement;
    All these keywords.

    JEL classification:

    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General

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