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CSR as contractarian model of multi-stakeholder corporate governance and the game-theory of its implementation

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  • Lorenzo Sacconi

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Abstract

Corporate Social Responsibility (CSR) is here defined as a multi-stakeholder model of corporate governance and fiduciary duties naturally emerging from a critical assessment of the incomplete contracts view of the firm based on concepts like as authority and residual rights of control. As far as the normative point of view is concerned, multi-stakeholder fiduciary duties are deduced from a theory of the firm’s stakeholders Social Contract. This provide for a clear cut and calculable objective function, a criterion for governance and strategic management no less able to set a bottom-line to the firm management than the profit maximization principle. The theory of co-operative bargaining games, and the Nash bargaining solution in particular, provides the key concepts. By the way this also answers some criticisms raised by Michael Jensen (2001) against the notion of stakeholders value. As far as implementation of the normative model is concerned, four roles of voluntary but explicit CSR norms or social standard are presented in terms of a non-cooperative game theory of implementation. It is shown that they allow the description of strategies and equilibria, even if multiple, in a game played under unforeseen contingencies. Secondly, a CSR norm permits the ex ante selection of the equilibrium point that meets the requirements of an impartial choice. An explicit agreement on a contractarian norm is moreover a way to introduce psychological conformist equilibria, and quite surprisingly to derive the significant result that mixed strategy equilibria are absent in a psychological repeated Trust Game. Lastly, a cognitive and predictive role is played by an agreed CSR norm as the appropriate starting point for an equilibrium selection mechanism that, from a state of predictive uncertainty about possible equilibria, generates a state of mutually consistent expectations consistent with the prediction that all players will converge on the psychological equilibrium fully conforming with the norm as the effective solution of the game.

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Bibliographic Info

Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0818.

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Date of creation: 2008
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Handle: RePEc:trn:utwpde:0818

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Related research

Keywords: corporate social responsibility; stakeholders; incomplete contracts; social norms; reputations; psychological games; conformity; equilibrium selection;

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References

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  1. Michael Jensen, 2001. "Value Maximisation, Stakeholder Theory, and the Corporate Objective Function," European Financial Management, European Financial Management Association, vol. 7(3), pages 297-317.
  2. Denzau, Arthur T & North, Douglass C, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Wiley Blackwell, vol. 47(1), pages 3-31.
  3. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  4. Gianluca Grimalda & Lorenzo Sacconi, 2005. "The Constitution of the Not-For-Profit Organisation: Reciprocal Conformity to Morality," Constitutional Political Economy, Springer, vol. 16(3), pages 249-276, 09.
  5. Drew Fudenberg & David Levine, 1987. "Reputation and Equilibrium Selection in Games With a Patient Player," Working papers 461, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Marco Faillo & Lorenzo Sacconi, 2007. "Norm compliance: the contribution of behavioral economics models," Department of Economics Working Papers 0704, Department of Economics, University of Trento, Italia.
  7. Raghuram G. Rajan & Luigi Zingales, 1998. "The Governance of the New Enterprise," CRSP working papers 487, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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Cited by:
  1. Leonardo Becchetti & Giacomo Degli Antoni & Stefania Ottone & Nazaria Solferino, 2011. "Spectators versus stakeholders with or without veil of ignorance: the difference it makes for justice and chosen distribution criteria," Econometica Working Papers wp31, Econometica.
  2. Lorenzo Sacconi, 2010. "A Rawlsian View of CSR and the Game Theory of its Implementation (Part I): the Multistakeholder Model of Corporate Governance," Econometica Working Papers wp22, Econometica.

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