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On the Neutrality of Socially Responsible Investing

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  • Arnold, Lutz

Abstract

This paper analyzes socially responsible investment in the Walrasian model with uncertainty. It proves the following neutrality result: if each consumer's utility function with social responsibility is a function of her utility without social responsibility and asset holdings and if financial assets guarantee market completeness independently of stock payoffs, then socially responsible investment changes nothing but investors' financial portfolios and their subjective utilities, leaving resource allocation, goods prices, and asset prices completely unaffected. That is, with complete financial markets SRI is neutral unless it also has an impact on agents'consumption choices. The one-good representative agent version of the model is used to show that with incomplete markets, by contrast, neutrality of socially responsible is the exception rather than the rule.

Suggested Citation

  • Arnold, Lutz, 2019. "On the Neutrality of Socially Responsible Investing," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203534, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203534
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    References listed on IDEAS

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    More about this item

    Keywords

    socially responsible investing; Modigliani-Miller theorem; general equilibrium;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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