Building Alliances for Corporate Social Responsibility

Abstract

Problem definition: Industry alliances for social responsibility require companies to voluntarily contribute resources to a common initiative. However, voluntary contribution can introduce free riding. How can an invitation mechanism mitigate free riding and drive companies to form an alliance for social responsibility given heterogeneity among companies in brand value and resource endowment?

Methodology/results: Motivated by industry practice, we model alliance formation as a two-stage public goods game among companies with different levels of brand value or endowment. One company can invite another to form an initial alliance before other companies decide to contribute. We find that the invitation mechanism is key to success. We identify two behavioral drivers behind alliance formation: status seeking by low-brand-value companies and prosociality of high-type companies (e.g., high brand value, high endowment). We test the theory in two incentivized laboratory experiments that independently manipulate brand value heterogeneity and endowment heterogeneity. Both experiments confirm the necessity of the invitation mechanism for meaningful contribution. Initiators frequently seek high-type partners regardless of the initiator's brand value or endowment, consistent with status-seeking behavior. Under heterogeneous brand value, high-brand-value companies assume a champion role by responding strongly to an alliance that leverages status seeking by low-type companies. Under heterogeneous endowment the salient financial disparity crowds out the prosocial tendency: companies contribute less under heterogeneous endowment when the invitation mechanism is available. Under heterogeneous brand value or endowment, once an alliance is formed  prosociality drives contribution of high-type companies but not low-type companies.

Managerial implications: Establishing an initial alliance is an important lever for driving collective social responsibility. Companies seeking to initiate an alliance can invite high-profile partners to leverage the status-seeking motives of other companies. Once an alliance is formed, prominent companies can be expected to step forward as champions of the initiative out of a sense of moral responsibility.

Keywords: behavioral operations, social responsibility in supply chains, public goods games, status seeking, industry alliances