A Behavioral Theory of Managerial Brownshifting

Abstract

Societal concern for sustainability has increased markedly, and many firms now frame pro-social objectives as part of core business practices. Yet corporate action often appears misaligned with these stated preferences, fostering the perception that meaningful change is unfolding too slowly. We develop a model that can help explain this disconnect by incorporating a novel behavioral dimension into an otherwise standard principal-agent framework. Specifically, economic actors experience greater elation from the success of greener projects and greater disappointment from their failure. We show that while this preference structure can, under some conditions, promote the adoption of greener projects, it can also induce brownshifting where the agent selects a relatively less green project. We contribute to the literature by introducing a mechanism that implies heterogeneous firm responses to increased pro-social preferences and can help explain apparent incongruences between sustainability discourse and corporate action.

Keywords: green investing, socially responsible investing, ESG, CSR, sustainability, behavioral economics, behavioral finance, agency theory

JEL Classification: D21, D86, D90, G30, G40, J30, L20, Q56