The Cost of Corporate Social Responsibility: The Case of the Community Reinvestment Act
AbstractA Data Envelopment Analysis (DEA) cost minimization model is employed to estimate the cost to thrift institutions of achieving a rating of 'Outstanding' under the anti-redlining Community Reinvestment Act, which is viewed as an act of voluntary Corporate Social Responsibility (CSR). There is no difference in overall cost efficiency between 'Outstanding' and minimally compliant 'Satisfactory' thrifts. However, the sources of cost inefficiency do differ, and an 'Outstanding' rating involves annual extra cost of $7.4 million or, 1.3% of total costs. This added cost is the shadow price of CSR since it is not an explicit output or input in the DEA cost model. Before and After-tax rates of return are the same for the 'Outstanding' and 'Satisfactory' thrifts, which implies a recoupment of the extra cost. The findings are consistent with CSR as a management choice based on balancing marginal cost and marginal revenue. An incidental finding is that larger thrifts are less efficient
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Bibliographic InfoPaper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0412.
Date of creation: Jun 2004
Date of revision:
Other versions of this item:
- Donald Vitaliano & Gregory Stella, 2006. "The cost of Corporate Social Responsibility: the case of the Community Reinvestment Act," Journal of Productivity Analysis, Springer, vol. 26(3), pages 235-244, December.
- M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-13 (All new papers)
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