Socially responsible firms and endogenous choice of strategic incentives
In this paper we are analyzing a mixed quantity-setting duopoly consisting of a socially concerned firm and a profit-maximizing firm. The socially concerned firm considers one group of stakeholders in its objective function and maximizes its profit plus a share of consumer surplus. Both firms have the option to hire a manager who determines the production quantity on behalf of the firm's owner. We find that in the subgame-perfect equilibrium of this game both firms hire a manager and delegate the production choice. If the unit production costs of the firms are similar, then the socially concerned firm has a higher market share and even higher profit. Interestingly, we observe that the relationship between the share of consumer surplus taken into account by the socially concerned firm and its profit is non-monotonic. As the share increases, the socially concerned firm's profit first increases and then decreases. The conclusion is that it pays off to take stakeholder interests into account, but not too much.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- C. Du Bois & R. Caers & M. Jegers & C. Schepers & S. De Gieter & R. Pepermans, 2004. "Agency problems and unrelated business income of non-profit organizations: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 36(20), pages 2317-2326.
- Marco Pagnozzi & Salvatore Piccolo, 2010.
"Vertical Separation with Private Contracts,"
CSEF Working Papers
251, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Jul 2011.
- L. Lambertini & A. Tampieri, 2011.
"On the Stability of Mixed Oligopoly Equilibria with CSR Firms,"
wp768, Dipartimento Scienze Economiche, Universita' di Bologna.
- Lambertini, Luca & Tampieri, Alessandro, 2015. "Incentives, performance and desirability of socially responsible firms in a Cournot oligopoly," Economic Modelling, Elsevier, vol. 50(C), pages 40-48.
- L. Lambertini & A. Tampieri, 2010. "Corporate Social Responsibility in a Mixed Oligopoly," Working Papers wp723, Dipartimento Scienze Economiche, Universita' di Bologna.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2009.
"Matching Firms, Managers, and Incentives,"
EIEF Working Papers Series
0901, Einaudi Institute for Economics and Finance (EIEF), revised Feb 2009.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2010. "Matching Firms, Managers, and Incentives," Harvard Business School Working Papers 10-073, Harvard Business School, revised Aug 2011.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2012. "Matching Firms, Managers, and Incentives," CEP Discussion Papers dp1144, Centre for Economic Performance, LSE.
- Oriana Bandiera & Andrea Prat & Luigi Guiso & Raffaella Sadun, 2011. "Matching Firms, Managers and Incentives," NBER Working Papers 16691, National Bureau of Economic Research, Inc.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2009. "Matching Firms, Managers and Incentives," Economics Working Papers ECO2009/14, European University Institute.
- Oriana Bandiera & Luigi Guiso & Andrea Prat & Raffaella Sadun, 2015. "Matching firms, managers and incentives," LSE Research Online Documents on Economics 57271, London School of Economics and Political Science, LSE Library.
- Bandiera, Oriana & Guiso, Luigi & Prat, Andrea & Sadun, Raffaella, 2009. "Matching Firms, Managers, and Incentives," CEPR Discussion Papers 7207, C.E.P.R. Discussion Papers.
- Michael C. Jensen, 2001.
"Value Maximization, Stakeholder Theory, And The Corporate Objective Function,"
Journal of Applied Corporate Finance,
Morgan Stanley, vol. 14(3), pages 8-21.
- 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.
- Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42.
- Bradley W. Benson & Wallace N. Davidson, 2010. "The Relation between Stakeholder Management, Firm Value, and CEO Compensation: A Test of Enlightened Value Maximization," Financial Management, Financial Management Association International, vol. 39(3), pages 929-964, 09.
- Michael Kopel & Clemens Löffler, 2008. "Commitment, first-mover-, and second-mover advantage," Journal of Economics, Springer, vol. 94(2), pages 143-166, July.
- Fershtman, Chaim, 1990. "The Interdependence between Ownership Status and Market Structure: The Case of Privatization," Economica, London School of Economics and Political Science, vol. 57(227), pages 319-328, August.
- Matthias Kräkel, 2005. "Strategic delegation in oligopolistic tournaments," Review of Economic Design, Springer;Society for Economic Design, vol. 9(4), pages 377-396, December.
- Englmaier, Florian, 2010.
"Commitment in R&D Tournaments via Strategic Delegation to Overoptimistic Managers,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
328, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Florian Englmaier, 2011. "Commitment in R&D tournaments via strategic delegation to overoptimistic managers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 32(1), pages 63-69, January.
- Englmaier, Florian, 2011. "Commitment in R&D tournaments via strategic delegation to overoptimistic managers," Munich Reprints in Economics 22011, University of Munich, Department of Economics.
- Melissa B. Frye & Edward Nelling & Elizabeth Webb, 2006. "Executive Compensation in Socially Responsible Firms," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(5), pages 446-455, 09.
- Lois Mahoney & Linda Thorn, 2006. "An Examination of the Structure of Executive Compensation and Corporate Social Responsibility: A Canadian Investigation," Journal of Business Ethics, Springer, vol. 69(2), pages 149-162, December.
- Leonardo Becchetti & Benjamin Huybrechts, 2008. "The Dynamics of Fair Trade as a Mixed-form Market," Journal of Business Ethics, Springer, vol. 81(4), pages 733-750, September.
- Goering, Gregory E., 2008. "Welfare impacts of a non-profit firm in mixed commercial markets," Economic Systems, Elsevier, vol. 32(4), pages 326-334, December.
- Marco Marini & Alberto Zevi, 2011.
"‘Just one of us’: consumers playing oligopoly in mixed markets,"
Journal of Economics,
Springer, vol. 104(3), pages 239-263, November.
- Marco Marini & Alberto Zevi, 2011. "Just One Of Us: Consumers Playing Oligopoly In Mixed Markets," Working Papers 0111, CREI Università degli Studi Roma Tre, revised 2011.
- Marco, Marini & Alberto, Zevi, 2010. "'Just one of us': Consumers playing oligopoly in mixed markets," MPRA Paper 31213, University Library of Munich, Germany, revised 30 May 2011.
- Abagail McWilliams & Donald S. Siegel & Patrick M. Wright, 2005.
"Corporate Social Responsibility: Strategic Implications,"
Rensselaer Working Papers in Economics
0506, Rensselaer Polytechnic Institute, Department of Economics.
- Abagail McWilliams & Donald S. Siegel & Patrick M. Wright, 2006. "Corporate Social Responsibility: Strategic Implications," Journal of Management Studies, Wiley Blackwell, vol. 43(1), pages 1-18, 01.
- Michael Kopel & Clemens Löffler, 2012. "Organizational Governance, Leadership, and the Influence of Competition," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(3), pages 362-392, September.
- Frank Milne & David Kelsey, 2006.
"Imperfect Competition and Corporate Governance,"
1079, Queen's University, Department of Economics.
- Katz, Michael L., 1991.
"Game-Playing Agents: Unobservable Contracts as Precommitments,"
Department of Economics, Working Paper Series
qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
- Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
- Laura T. Starks, 2009. "EFA Keynote Speech: "Corporate Governance and Corporate Social Responsibility: What Do Investors Care about? What Should Investors Care about?"," The Financial Review, Eastern Finance Association, vol. 44(4), pages 461-468, November.
- Daniel Fernández-Kranz & Juan Santaló, 2010. "When Necessity Becomes a Virtue: The Effect of Product Market Competition on Corporate Social Responsibility," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 453-487, 06.
- Kockesen, L. & Ok, E., 1999.
"Strategic Delegation by Unobservable Incentive Contracts,"
99-11, C.V. Starr Center for Applied Economics, New York University.
- Levent Koçkesen & Efe A. Ok, 2004. "Strategic Delegation By Unobservable Incentive Contracts," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 397-424.
- Fershtman, Chaim & Judd, Kenneth L, 1987.
"Equilibrium Incentives in Oligopoly,"
American Economic Review,
American Economic Association, vol. 77(5), pages 927-940, December.
- Corts, Kenneth S. & Neher, Darwin V., 2003. "Credible delegation," European Economic Review, Elsevier, vol. 47(3), pages 395-407, June.
- Matthias Kräkel, 2002. "Delegation and strategic incentives for managers in contests," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(8), pages 461-470.
- Jerald SCHIFF & Burton WEISBROD, 1991. "Competition Between For-Profit And Nonprofit Organizations In Commercial Markets," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 62(4), pages 619-640, October.
- Levent Koçkesen, 2007. "Unobservable Contracts as Precommitments," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(3), pages 539-552, June.
- Purroy, Pedro & Salas, Vicente, 2000. "Strategic competition in retail banking under expense preference behavior," Journal of Banking & Finance, Elsevier, vol. 24(5), pages 809-824, May.
- Donald Lien, 2002. "Competition between Nonprofit and For-Profit Firms," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(3), pages 193-207, December.
- 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.
- Baron, David P., 2008. "Managerial contracting and corporate social responsibility," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 268-288, February.
- White, Mark D., 2001. "Managerial incentives and the decision to hire managers in markets with public and private firms," European Journal of Political Economy, Elsevier, vol. 17(4), pages 877-896, November.
- Ramon Casadesus-Masanell & Pankaj Ghemawat, 2006. "Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows," Management Science, INFORMS, vol. 52(7), pages 1072-1084, July.
- Gregory E. Goering, 2010. "Corporate social responsibility, durable-goods and firm profitability," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(7), pages 489-496.
- Goering, Gregory E., 2008. "Socially concerned firms and the provision of durable goods," Economic Modelling, Elsevier, vol. 25(3), pages 575-583, May.
- Gregory E. Goering, 2007. "The strategic use of managerial incentives in a non-profit firm mixed duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 83-91.
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:982-989. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.