Modeling Cognitive Social Capital and Corporate Social Responsibility (CSR) as Preconditions for Sustainable Networks of Relations

Abstract:     
The paper studies the relationship between social capital (SC) and Corporate Social Responsibility (CSR) by investigating the idea of a virtuous circle between the level of SC and the implementation of CSR standard of behaviour that favours the creation of cooperative networks between the firm and all its stakeholders by promoting the spread of social norms of trust and cooperation.

Multidimensionality of social capital (Uphoff 1999, Paldam 2000) is accounted in terms of cognitive and structural SC. The first refers to dispositional characters of agents that affect their propensity to behave in conformity with social norms, whereas the latter consists of social networks connecting agents. With regard to the concept of CSR, we adopt a contractarian approach and consider CSR as an extended model of corporate governance, based on fiduciary duties owed to all the firm's stakeholders. Among stakeholders, we distinguish between strong and weak stakeholders. Both of them are locked into a relation with the firm by specific investments. While, however, cooperation with strong stakeholders is a long run equilibrium for the firm, on the contrary, in the relations with weak stakeholders the firm face material incentives to defect from cooperation with them.

By joint use of the tools of network analysis and psychological game theory, the paper shows the role of cognitive SC and CSR in promoting the emergence of cooperative networks between the firm and all its stakeholders (structural SC). In particular, (a) the level of cognitive SC, in terms of community or society-wide disposition to comply with fair social norms, plays a key role in providing opportunities for the firm to agree (with strong stakeholders) on CSR principles and hence to induce incentives to comply with them. (b) The explicit agreement on CSR principles and norms engenders cognitive social capital on its own. It does so by creating room for conformist preferences that exploit beliefs of mutual conformity and dispositions to conform. Moreover, the agreement on CSR principles by itself positively affects beliefs about reciprocal conformity on the part of the firm and its strong stakeholders. (c) The level of cognitive social capital (both beliefs and dispositions) and the decision to adopt CSR principles generate structural social capital understood as long-term cooperative relationships between the firm and its stakeholders, even though, on considering the material payoffs characterizing the single relationships, the firm would have no incentive to cooperate with weak stakeholders. Alongside the notion of sub game prefect equilibria and credible threats, we show that strong stakeholders endowed with high cognitive social capital, have an incentive in punishing the firm if it is not cooperative with weak stakeholders. The sanction may induce the firm to cooperate with weak stakeholders as well, and it generates cooperative networks that would not be sustainable without the power of the sanction.

Number of Pages in PDF File: 93

Keywords: Social Capital, Corporate Social Responsibility, Social Norms, Network, Cooperation, Trust

JEL Classification: C72, C79, D23, D63, D64, G30, L22, M14

working papers series