IDEAS home Printed from https://ideas.repec.org/a/bla/stratm/v39y2018i6p1650-1677.html
   My bibliography  Save this article

An economic case for CSR: The comparative efficiency of for‐profit firms in meeting consumer demand for social goods

Author

Listed:
  • Aseem Kaul
  • Jiao Luo

Abstract

Research Summary We develop a formal model of CSR, with both a for‐profit and a non‐profit organization providing social goods to needy recipients and competing for resources from consumers. We show that CSR results in financial benefit if it is either related to the firm's core business, or non‐overlapping with non‐profit efforts, but only leads to social benefit if both conditions apply, with these relationships being moderated by the firm's core business capabilities. Our article thus makes a case for CSR based on the comparative efficiency of for‐profits in providing social goods relative to non‐profits, while also highlighting the potential divergence between the financial and social impact of CSR. In addition, it offers new insights into the heterogeneity of CSR, and the role of non‐profits and hybrids. Managerial Summary Firms that undertake socially responsible actions are often rewarded for these actions by supporters of social causes, enabling the firms to make additional profits from CSR. Whether CSR is socially beneficial, however, depends on how the firm compares to a non‐profit serving the same cause. CSR activities that are non‐overlapping with existing non‐profit efforts, and that are closely related to the firm's core business, are likely to most strongly benefit society, especially when undertaken by high‐performing firms. Where this is not the case, CSR adds little social value and may even be harmful. Managers seeking to maximize both firm profits and social welfare through CSR should thus ask themselves: What is my firm's unique advantage in serving this cause relative to alternative providers, for example, non‐profits?

Suggested Citation

  • Aseem Kaul & Jiao Luo, 2018. "An economic case for CSR: The comparative efficiency of for‐profit firms in meeting consumer demand for social goods," Strategic Management Journal, Wiley Blackwell, vol. 39(6), pages 1650-1677, June.
  • Handle: RePEc:bla:stratm:v:39:y:2018:i:6:p:1650-1677
    DOI: 10.1002/smj.2705
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/smj.2705
    Download Restriction: no

    File URL: https://libkey.io/10.1002/smj.2705?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(2), pages 217-235.
    2. Becker, Gary S, 1974. "A Theory of Social Interactions," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1063-1093, Nov.-Dec..
    3. Olga Hawn & Ioannis Ioannou, 2016. "Mind the gap: The interplay between external and internal actions in the case of corporate social responsibility," Strategic Management Journal, Wiley Blackwell, vol. 37(13), pages 2569-2588, December.
    4. Christopher Marquis & Michael W. Toffel & Yanhua Zhou, 2016. "Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing," Organization Science, INFORMS, vol. 27(2), pages 483-504, April.
    5. Caroline Flammer & Jiao Luo, 2017. "Corporate social responsibility as an employee governance tool: Evidence from a quasi-experiment," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 163-183, February.
    6. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    7. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership of Public Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1343-1372.
    8. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    9. David P. Baron, 2001. "Private Politics, Corporate Social Responsibility, and Integrated Strategy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(1), pages 7-45, March.
    10. Timothy Besley & Maitreesh Ghatak, 2003. "Incentives, Choice, and Accountability in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(2), pages 235-249, Summer.
    11. James Andreoni, 1995. "Warm-Glow versus Cold-Prickle: The Effects of Positive and Negative Framing on Cooperation in Experiments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 1-21.
    12. Joseph T. Mahoney & Anita M. McGahan & Christos N. Pitelis, 2009. "Perspective ---The Interdependence of Private and Public Interests," Organization Science, INFORMS, vol. 20(6), pages 1034-1052, December.
    13. Matthew J. Kotchen, 2006. "Green Markets and Private Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 816-845, August.
    14. Caroline Flammer, 2015. "Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach," Management Science, INFORMS, vol. 61(11), pages 2549-2568, November.
    15. Helmut Anheier & Avner Ben-Ner, 1997. "Shifting Boundaries: Long-term changes in the size of the for-profit, nonprofit, cooperative and government sectors," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 68(3), pages 335-353, September.
    16. Ilya R. P. Cuypers & Ping-Sheng Koh & Heli Wang, 2016. "Sincerity in Corporate Philanthropy, Stakeholder Perceptions and Firm Value," Organization Science, INFORMS, vol. 27(1), pages 173-188, February.
    17. Christiane Bode & Jasjit Singh & Michelle Rogan, 2015. "Corporate Social Initiatives and Employee Retention," Organization Science, INFORMS, vol. 26(6), pages 1702-1720, December.
    18. Witold J. Henisz & Sinziana Dorobantu & Lite J. Nartey, 2014. "Spinning gold: The financial returns to stakeholder engagement," Strategic Management Journal, Wiley Blackwell, vol. 35(12), pages 1727-1748, December.
    19. Jack A. Nickerson & Todd R. Zenger, 2008. "Envy, comparison costs, and the economic theory of the firm," Strategic Management Journal, Wiley Blackwell, vol. 29(13), pages 1429-1449, December.
    20. Daniel A. Levinthal & Brian Wu, 2010. "Opportunity costs and non‐scale free capabilities: profit maximization, corporate scope, and profit margins," Strategic Management Journal, Wiley Blackwell, vol. 31(7), pages 780-801, July.
    21. Hüseyin Tanriverdi & N. Venkatraman, 2005. "Knowledge relatedness and the performance of multibusiness firms," Strategic Management Journal, Wiley Blackwell, vol. 26(2), pages 97-119, February.
    22. Henri Servaes & Ane Tamayo, 2013. "The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness," Management Science, INFORMS, vol. 59(5), pages 1045-1061, May.
    23. Gerard George & Anita M. McGahan & Jaideep Prabhu, 2012. "Innovation for Inclusive Growth: Towards a Theoretical Framework and a Research Agenda," Journal of Management Studies, Wiley Blackwell, vol. 49(4), pages 661-683, June.
    24. David J. Teece, 2003. "Towards an Economic Theory of the Multiproduct Firm," World Scientific Book Chapters, in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 15, pages 419-446, World Scientific Publishing Co. Pte. Ltd..
    25. Laurence Capron & Will Mitchell, 2009. "Selection Capability: How Capability Gaps and Internal Social Frictions Affect Internal and External Strategic Renewal," Organization Science, INFORMS, vol. 20(2), pages 294-312, April.
    26. Mark Bagnoli & Susan G. Watts, 2003. "Selling to Socially Responsible Consumers: Competition and The Private Provision of Public Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 419-445, September.
    27. Robert G. Eccles & Ioannis Ioannou & George Serafeim, 2014. "The Impact of Corporate Sustainability on Organizational Processes and Performance," Management Science, INFORMS, vol. 60(11), pages 2835-2857, November.
    28. Carolyn Fischer & Thomas P. Lyon, 2014. "Competing Environmental Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(3), pages 692-716, September.
    29. Bruno S. Frey & Reto Jegen, 2001. "Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
    30. David P. Baron & Margaret Neale & Hayagreeva Rao, 2016. "Extending Nonmarket Strategy: Political Economy and the Radical Flank Effect in Private Politics," Strategy Science, INFORMS, vol. 1(2), pages 105-126, June.
    31. Andrew King & Michael Lenox, 2002. "Exploring the Locus of Profitable Pollution Reduction," Management Science, INFORMS, vol. 48(2), pages 289-299, February.
    32. Michael L. Barnett & Robert M. Salomon, 2012. "Does it pay to be really good? addressing the shape of the relationship between social and financial performance," Strategic Management Journal, Wiley Blackwell, vol. 33(11), pages 1304-1320, November.
    33. Christopher Marquis & Cuili Qian, 2014. "Corporate Social Responsibility Reporting in China: Symbol or Substance?," Organization Science, INFORMS, vol. 25(1), pages 127-148, February.
    34. Robert C. Seamans, 2012. "Fighting City Hall: Entry Deterrence and Technology Upgrades in Cable TV Markets," Management Science, INFORMS, vol. 58(3), pages 461-475, March.
    35. Daniel W. Elfenbein & Ray Fisman & Brian Mcmanus, 2012. "Charity as a Substitute for Reputation: Evidence from an Online Marketplace," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(4), pages 1441-1468.
    36. Aaron K. Chatterji & Michael W. Toffel, 2010. "How firms respond to being rated," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 917-945, September.
    37. Pratima Bansal, 2005. "Evolving sustainably: a longitudinal study of corporate sustainable development," Strategic Management Journal, Wiley Blackwell, vol. 26(3), pages 197-218, March.
    38. Sandra A. Waddock & Samuel B. Graves, 1997. "The Corporate Social Performance–Financial Performance Link," Strategic Management Journal, Wiley Blackwell, vol. 18(4), pages 303-319, April.
    39. Dan Ariely & Anat Bracha & Stephan Meier, 2009. "Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially," American Economic Review, American Economic Association, vol. 99(1), pages 544-555, March.
    40. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-755, September.
    41. Besley, Timothy & Ghatak, Maitreesh, 2007. "Retailing public goods: The economics of corporate social responsibility," Journal of Public Economics, Elsevier, vol. 91(9), pages 1645-1663, September.
    42. Olson, Mancur & Zeckhauser, Richard, 1970. "The Efficient Production of External Economies," American Economic Review, American Economic Association, vol. 60(3), pages 512-517, June.
    43. Buchholz, Wolfgang & Konrad, Kai A., 1995. "Strategic transfers and private provision of public goods," Journal of Public Economics, Elsevier, vol. 57(3), pages 489-505, July.
    44. Piercarlo Zanchettin, 2006. "Differentiated Duopoly with Asymmetric Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 999-1015, December.
    45. Andrew A. King & Michael J. Lenox, 2001. "Does It Really Pay to Be Green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical Study of Firm Environmental and Financial Performance," Journal of Industrial Ecology, Yale University, vol. 5(1), pages 105-116, January.
    46. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    47. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    48. Constantinos C. Markides & Peter J. Williamson, 1994. "Related diversification, core competences and corporate performance," Strategic Management Journal, Wiley Blackwell, vol. 15(S2), pages 149-165, June.
    49. Aseem Kaul & Brian Wu, 2016. "A capabilities-based perspective on target selection in acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 37(7), pages 1220-1239, July.
    50. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
    51. Ping-Sheng Koh & Cuili Qian & Heli Wang, 2014. "Firm litigation risk and the insurance value of corporate social performance," Strategic Management Journal, Wiley Blackwell, vol. 35(10), pages 1464-1482, October.
    52. Thomas P. Lyon & John W. Maxwell, 2011. "Greenwash: Corporate Environmental Disclosure under Threat of Audit," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(1), pages 3-41, March.
    53. Williamson, Oliver E, 1998. "The Institutions of Governance," American Economic Review, American Economic Association, vol. 88(2), pages 75-79, May.
    54. Donald S. Siegel & Donald F. Vitaliano, 2007. "An Empirical Analysis of the Strategic Use of Corporate Social Responsibility," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(3), pages 773-792, September.
    55. Kim, Eun-Hee & Lyon, Thomas P., 2011. "Strategic environmental disclosure: Evidence from the DOE's voluntary greenhouse gas registry," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 311-326, May.
    56. George J. Stigler, 1974. "Free Riders and Collective Action: An Appendix to Theories of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 359-365, Autumn.
    57. Becker, Elizabeth & Lindsay, Cotton M, 1994. "Does the Government Free Ride?," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 277-296, April.
    58. Mercedes Delgado & Margaret Kyle & Anita M. McGahan, 2013. "Intellectual Property Protection and the Geography of Trade," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 733-762, September.
    59. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Sinziana Dorobantu & Aseem Kaul & Bennet Zelner, 2017. "Nonmarket strategy research through the lens of new institutional economics: An integrative review and future directions," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 114-140, January.
    60. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    61. Vanessa C. Burbano, 2016. "Social Responsibility Messages and Worker Wage Requirements: Field Experimental Evidence from Online Labor Marketplaces," Organization Science, INFORMS, vol. 27(4), pages 1010-1028, August.
    62. Maitland, Ian, 1994. "The Morality of the Corporation: An Empirical or Normative Disagreement?," Business Ethics Quarterly, Cambridge University Press, vol. 4(4), pages 445-458, October.
    63. David P. Baron & Daniel Diermeier, 2007. "Strategic Activism and Nonmarket Strategy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(3), pages 599-634, September.
    64. Mahoney, Joseph & McGahan, Anita & Pitelis, Christos, 2009. "The Interdependence of Private and Public Interests," Papers DYNREG40, Economic and Social Research Institute (ESRI).
    65. Ramon Casadesus‐Masanell & Michael Crooke & Forest Reinhardt & Vishal Vasishth, 2009. "Households' Willingness to Pay for “Green” Goods: Evidence from Patagonia's Introduction of Organic Cotton Sportswear," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 203-233, March.
    66. Caroline Flammer, 2015. "Does product market competition foster corporate social responsibility? Evidence from trade liberalization," Strategic Management Journal, Wiley Blackwell, vol. 36(10), pages 1469-1485, October.
    67. Zahra Bhanji & Joanne E Oxley, 2013. "Overcoming the dual liability of foreignness and privateness in international corporate citizenship partnerships," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(4), pages 290-311, May.
    68. Guangliang Ye & Richard L. Priem & Abdullah A. Alshwer, 2012. "Achieving Demand-Side Synergy from Strategic Diversification: How Combining Mundane Assets Can Leverage Consumer Utilities," Organization Science, INFORMS, vol. 23(1), pages 207-224, February.
    69. Daniel W. Elfenbein & Brian McManus, 2010. "A Greater Price for a Greater Good? Evidence That Consumers Pay More for Charity-Linked Products," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 28-60, May.
    70. Caterina Tantalo & Richard L. Priem, 2016. "Value creation through stakeholder synergy," Strategic Management Journal, Wiley Blackwell, vol. 37(2), pages 314-329, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jiao Luo & Aseem Kaul, 2019. "Private action in public interest: The comparative governance of social issues," Strategic Management Journal, Wiley Blackwell, vol. 40(4), pages 476-502, April.
    2. Haram Seo & Jiao Luo & Aseem Kaul, 2021. "Giving a little to many or a lot to a few? The returns to variety in corporate philanthropy," Strategic Management Journal, Wiley Blackwell, vol. 42(9), pages 1734-1764, September.
    3. Jiao Luo & Aseem Kaul & Haram Seo, 2018. "Winning us with trifles: Adverse selection in the use of philanthropy as insurance," Strategic Management Journal, Wiley Blackwell, vol. 39(10), pages 2591-2617, October.
    4. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Sinziana Dorobantu & Aseem Kaul & Bennet Zelner, 2017. "Nonmarket strategy research through the lens of new institutional economics: An integrative review and future directions," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 114-140, January.
    5. Michele Fioretti, 2022. "Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare (former title: Social Responsibility and Firm's Objectives)," SciencePo Working papers hal-03393065, HAL.
    6. Jasjit Singh & Nina Teng & Serguei Netessine, 2019. "Philanthropic Campaigns and Customer Behavior: Field Experiments on an Online Taxi Booking Platform," Management Science, INFORMS, vol. 65(2), pages 913-932, February.
    7. Vanessa C. Burbano & John Mamer & Jason Snyder, 2018. "Pro bono as a human capital learning and screening mechanism: Evidence from law firms," Strategic Management Journal, Wiley Blackwell, vol. 39(11), pages 2899-2920, November.
    8. Markus Kitzmueller & Jay Shimshack, 2012. "Economic Perspectives on Corporate Social Responsibility," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 51-84, March.
    9. Markus Kitzmueller, 2008. "Economics and Corporate Social Responsibility," Economics Working Papers ECO2008/37, European University Institute.
    10. Paul Pecorino, 2015. "Olson’s Logic of Collective Action at fifty," Public Choice, Springer, vol. 162(3), pages 243-262, March.
    11. Paul Pecorino, 2013. "Monopolistic Competition and Public Good Provision with By‐product Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 875-893, December.
    12. Kira R. Fabrizio & Eun-Hee Kim, 2019. "Reluctant Disclosure and Transparency: Evidence from Environmental Disclosures," Organization Science, INFORMS, vol. 30(6), pages 1207-1231, November.
    13. John Morgan & Justin Tumlinson, 2019. "Corporate Provision of Public Goods," Management Science, INFORMS, vol. 65(10), pages 4489-4504, October.
    14. Ho, Ly & Bai, Min & Lu, Yue & Qin, Yafeng, 2021. "The effect of corporate sustainability performance on leverage adjustments," The British Accounting Review, Elsevier, vol. 53(5).
    15. Vanessa C. Burbano, 2016. "Social Responsibility Messages and Worker Wage Requirements: Field Experimental Evidence from Online Labor Marketplaces," Organization Science, INFORMS, vol. 27(4), pages 1010-1028, August.
    16. Aneta Havlinova & Jiri Kukacka, 2023. "Corporate Social Responsibility and Stock Prices After the Financial Crisis: The Role of Strategic CSR Activities," Journal of Business Ethics, Springer, vol. 182(1), pages 223-242, January.
    17. Maarten Pieter Schinkel & Leonard Treuren, 2021. "Corporate Social Responsibility by Joint Agreement," Tinbergen Institute Discussion Papers 21-063/VII, Tinbergen Institute.
    18. Mark Bagnoli & Susan G. Watts, 2020. "On the corporate use of green bonds," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 187-209, January.
    19. Aharon Mohliver & Donal Crilly & Aseem Kaul, 2023. "Corporate social counterpositioning: How attributes of social issues influence competitive response," Strategic Management Journal, Wiley Blackwell, vol. 44(5), pages 1199-1217, May.
    20. Kamini Gupta & Donal Crilly & Thomas Greckhamer, 2020. "Stakeholder engagement strategies, national institutions, and firm performance: A configurational perspective," Strategic Management Journal, Wiley Blackwell, vol. 41(10), pages 1869-1900, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:stratm:v:39:y:2018:i:6:p:1650-1677. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/0143-2095 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.