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On the Economics of Corporate Responsibility

This paper seeks to explore the economic mechanisms behind corporate social responsibility (CSR) in a micro-economic model of the firm. The motivation of this study is to shed some light on the potential causes of the observed phenomena of voluntary over-compliance among firms. We consider a few diferent models, both static and dynamic, to investigate how various assumptions about costs and benefits may aspect CSR behavior through a stock of goodwill capital. Our analysis show that in optimum, the profit maximizing firm must balance costs and benefits of CSR. From a cursory look into the CSR literature, we find evidence that some of the hypotheses that can be derived from the models in this paper can be verified empirically.

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File URL: http://web.abo.fi/fak/esf/fei/redovisa/kurser/Lasse/Mistra%20wp/sirp%20wp%2007-03%20-%20lundgren.pdf
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Paper provided by Sustainable Investment Research Platform in its series Sustainable Investment and Corporate Governance Working Papers with number 2007/3.

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Length: 39 pages
Date of creation: 22 Nov 2007
Date of revision:
Handle: RePEc:hhb:sicgwp:2007_003
Contact details of provider: Postal: Economics of Corporate Sustainability Management, Department of Industrial Economics and Management, Royal Institute of Technology, SE-100 44 Stockholm, SWEDEN
Phone: 08-790 78 61
Fax: 08-790 76 17
Web page: http://www.sirps.se

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  1. Tommy Lundgren, 2003. "A Real Options Approach to Abatement Investments and Green Goodwill," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(1), pages 17-31, May.
  2. Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 30(3), pages 387-409, July.
  3. Lundgren, Tommy & Sjostrom, Magnus, 2001. "A flexible specification of adjustment costs in dynamic factor demand models," Economics Letters, Elsevier, vol. 72(2), pages 145-150, August.
  4. Eriksson, Clas, 2004. "Can green consumerism replace environmental regulation?--a differentiated-products example," Resource and Energy Economics, Elsevier, vol. 26(3), pages 281-293, September.
  5. Catherine J. Morrison-Paul & Donald S. Siegel, 2006. "Corporate Social Responsibility and Economic Performance," Rensselaer Working Papers in Economics 0605, Rensselaer Polytechnic Institute, Department of Economics.
  6. Gustav Feichtinger & Richard F. Hartl & Suresh P. Sethi, 1994. "Dynamic Optimal Control Models in Advertising: Recent Developments," Management Science, INFORMS, vol. 40(2), pages 195-226, February.
  7. repec:cup:cbooks:9780521819473 is not listed on IDEAS
  8. Bismut, Jean-Michel, 1975. "Growth and optimal intertemporal allocation of risks," Journal of Economic Theory, Elsevier, vol. 10(2), pages 239-257, April.
  9. Kamien, Morton I. & Schwartz, Nancy L., 1971. "Sufficient conditions in optimal control theory," Journal of Economic Theory, Elsevier, vol. 3(2), pages 207-214, June.
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