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Corporate Social Responsibility and International Competition: A Welfare Analysis

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  • Yang-Ming Chang
  • Hung-Yi Chen
  • Leonard F. S. Wang
  • Shih-Jye Wu

Abstract

This paper examines the welfare implications of corporate social responsibility (CSR) in international markets under imperfect competition. Based on a stylized model of an import-competing duopolistic market, we show the feasibility of moving toward tariff reductions when both domestic and foreign firms launch CSR initiatives in that their payoffs include not only individual profits, but also the benefits of consumers. For the case where the foreign exporter unilaterally adopts the consumer-oriented CSR as a strategy, there is a rent-shifting effect because the foreign firm's payoff increases whereas the domestic firm's profit decreases. In response, the importing country's government raises its tariff on the foreign product. If, instead, the domestic firm adopts the CSR strategy unilaterally, the rent-shifting effect disappears and both the competing firms’ payoffs increase. We further identify the conditions under which the CSR initiatives of the firms constitute the dominant strategy, leading to a Pareto efficient outcome at which the firms’ payoffs, consumer surplus, and social welfare are at their maximum levels.

Suggested Citation

  • Yang-Ming Chang & Hung-Yi Chen & Leonard F. S. Wang & Shih-Jye Wu, 2014. "Corporate Social Responsibility and International Competition: A Welfare Analysis," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 625-638, August.
  • Handle: RePEc:bla:reviec:v:22:y:2014:i:3:p:625-638
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    File URL: http://hdl.handle.net/10.1111/roie.12117
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    References listed on IDEAS

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    1. repec:eee:ecmode:v:72:y:2018:i:c:p:1-7 is not listed on IDEAS
    2. Leal, Mariel & Garcia, Arturo & Lee, Sang-Ho, 2017. "Effects of globalizing a consumer-friendly firm into an asymmetric mixed duopoly," MPRA Paper 83512, University Library of Munich, Germany.
    3. Leal, Mariel & Garcia, Arturo & Lee, Sang-Ho, 2018. "The Timing Of Environmental Tax Policy With A Consumer-Friendly Firm," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 59(1), pages 25-43, June.
    4. Xu, Lili & Lee, Sang-Ho, 2018. "Corporate Social Responsibility and Environmental Taxation with Endogenous Entry," MPRA Paper 86398, University Library of Munich, Germany.
    5. Chen, Charlie L. & Liu, Qian & Li, Jie & Wang, Leonard F.S., 2016. "Corporate social responsibility and downstream price competition with retailer's effort," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 36-54.
    6. Lee, Sang-Ho & Xu, Lili, 2017. "Tariffs and Privatization Policy in a Bilateral Trade Model with Corporate Social Responsibility," MPRA Paper 82042, University Library of Munich, Germany.
    7. repec:kap:jeczfn:v:124:y:2018:i:1:d:10.1007_s00712-017-0564-2 is not listed on IDEAS
    8. Garcia, Arturo & Leal, Mariel & Lee, Sang-Ho, 2018. "Time-inconsistent environmental policies with a consumer-friendly firm: tradable permits versus emission tax," MPRA Paper 86407, University Library of Munich, Germany.
    9. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2015. "Strategic Corporate Social Responsibility by Multinational Enterprises," Working Papers 1501, University of Crete, Department of Economics.
    10. Manasakis, Constantine & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2017. "Strategic corporate social responsibility by a multinational firm," DICE Discussion Papers 246, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    11. Kim, Seung-Leul & Lee, Sang-Ho & Matsumura, Toshihiro, 2017. "Corporate social responsibility and privatization policy in a mixed oligopoly," MPRA Paper 79780, University Library of Munich, Germany.
    12. Flores, Daniel & García, Arturo, 2016. "On the output and welfare effects of a non-profit firm in a mixed duopoly: A generalization," Economic Systems, Elsevier, vol. 40(4), pages 631-637.
    13. Garcia, Arturo & Leal, Mariel & Lee, Sang-Ho, 2018. "Endogenous timing with a socially responsible firm," MPRA Paper 83968, University Library of Munich, Germany.

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