Impact Trickles Down: A General Equilibrium Theory of Stakeholder Exit and Engagement

How do purpose-driven stakeholders induce reform? Using a multi-sided matching equilibrium, we show that whether they exit or engage depends on whether social harm scales with productivity. When harm is uncorrelated—an implicit assumption in most literature—purpose-driven stakeholders engage and compensating differentials adjust. But when harm scales with production, high-productivity firms outbid others for profit-driven stakeholders to avoid mitigation. Purpose-driven stakeholders exit—a seemingly ineffective action at the firm level but whose impact trickles down the productivity ladder and across stakeholder types. This necessitates a multi-sided framework, rationalizes puzzling findings, and explains why studies underestimate the aggregate impact of exit.