Corporate Provision of Public Goods

Management Science (Articles in Advance): DOI: 10.1287/mnsc.2018.3137

17 Pages Posted: 5 Jun 2012 Last revised: 3 Apr 2019

See all articles by John Morgan

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group

Justin Tumlinson

Loughborough University; Ludwig Maximilian University of Munich (LMU)

Date Written: June 5, 2012

Abstract

Friedman (1970) suggests that firms ought not divert profits towards public goods since shareholders can better make these contributions themselves. Despite this, activist shareholders are increasingly successful in persuading firms to be "socially responsible." We study firm behavior when shareholders care about public goods as well as profits and when managerial contracts reflect these concerns. Under these ideal conditions, managers redirect more profits toward public goods than shareholders would when acting separately---shareholders are poorer but happier. Further, so long as the public good is sufficiently desirable, the manager selects the socially optimal level of output, despite the mismatch between shareholder preferences and those of society at large.

Keywords: public goods, corporate social responsibility, externalities

JEL Classification: C7, D21, G3, H4, D62

Suggested Citation

Morgan, John and Tumlinson, Justin, Corporate Provision of Public Goods (June 5, 2012). Management Science (Articles in Advance): DOI: 10.1287/mnsc.2018.3137. Available at SSRN: https://ssrn.com/abstract=2077969 or http://dx.doi.org/10.2139/ssrn.2077969

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-2669 (Phone)
810-885-5959 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/rjmorgan/

Justin Tumlinson (Contact Author)

Loughborough University ( email )

Ashby Road
Nottingham NG1 4BU
Great Britain
+44 (0) 2038051339 (Phone)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
238
Abstract Views
1,847
rank
135,367
PlumX Metrics