CSR as Contractarian Model of Multi-Stakeholder Corporate Governance and the Game-Theory of its Implementation

75 Pages Posted: 23 Jul 2008 Last revised: 2 Jun 2009

Lorenzo Sacconi

University of Trento - Department of Economics and Management

Date Written: May 30, 2008


Corporate Social Responsibility (CSR) is here defined as a multi-stakeholder model of corporate governance and fiduciary duties naturally emerging from a critical assessment of the incomplete contracts view of the firm based on concepts like as authority and residual rights of control. As far as the normative point of view is concerned, multi-stakeholder fiduciary duties are deduced from a theory of the firm's stakeholders Social Contract. This provide for a clear cut and calculable objective function, a criterion for governance and strategic management no less able to set a bottom-line to the firm management than the profit maximization principle. The theory of co-operative bargaining games, and the Nash bargaining solution in particular, provides the key concepts. By the way this also answers some criticisms raised by Michael Jensen (2001) against the notion of stakeholders value.

As far as implementation of the normative model is concerned, four roles of voluntary but explicit CSR norms or social standard are presented in terms of a non-cooperative game theory of implementation. It is shown that they allow the description of strategies and equilibria, even if multiple, in a game played under unforeseen contingencies. Secondly, a CSR norm permits the ex ante selection of the equilibrium point that meets the requirements of an impartial choice. An explicit agreement on a contractarian norm is moreover a way to introduce psychological conformist equilibria, and quite surprisingly to derive the significant result that mixed strategy equilibria are absent in a psychological repeated Trust Game. Lastly, a cognitive and predictive role is played by an agreed CSR norm as the appropriate starting point for an equilibrium selection mechanism that, from a state of predictive uncertainty about possible equilibria, generates a state of mutually consistent expectations consistent with the prediction that all players will converge on the psychological equilibrium fully conforming with the norm as the effective solution of the game.

Keywords: social norms, reputation, psychological games, conformity, equilibrium selection

JEL Classification: C7, D23, D63, L21, M14

Suggested Citation

Sacconi, Lorenzo, CSR as Contractarian Model of Multi-Stakeholder Corporate Governance and the Game-Theory of its Implementation (May 30, 2008). Available at SSRN: https://ssrn.com/abstract=1163704 or http://dx.doi.org/10.2139/ssrn.1163704

Lorenzo Sacconi (Contact Author)

University of Trento - Department of Economics and Management ( email )

via Inama 5
I-38100 Trento

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