The Coasean Dissolution of Corporate Social Responsibility
32 Pages Posted: 19 Dec 2013 Last revised: 22 Apr 2014
Date Written: February 25, 2014
Written for the Chapman Law Review Symposium on the question “What can Law & Economics Teach Us About Corporate Social Responsibility,” this article argues that problems of corporate social responsibility (CSR) present typical Coasean incompatible use problems: the firm wishes to conduct its business in a manner that maximizes profits, but certain other parties want the business to be conducted in accordance with moral norms the observance of which would reduce the firm’s profits. When (a) the parties concerned with moral norms also have a willingness to pay to see these norms observed, and (b) these parties and the firm have low transaction costs because they are already in a contractual relationship, then we should expect that, consistent with the Coase theorem, the parties will negotiate to an efficient solution. That is, the firm will respond to the CSR preferences of its contractual counterparties to the extent that such parties’ willingness to pay to realize their CSR preferences exceeds the cost to the firm of doing so. The article explores this idea in connection with the CSR preferences of the firm’s customers, employees, suppliers, and investors, and then takes up the role of third-party CSR advocacy organizations, arguing that they are mechanisms for reducing certain high transactions costs some parties with CSR preferences would otherwise face in dealing with the firm. The article concludes by addressing certain moral issues arising out of this economic analysis, including whether a firm is behaving morally if it in effect charges its contractual counterparties for doing what it already has a moral obligation to do.
Keywords: Corporate Social Responsibility, Coase, Efficiency
JEL Classification: M14, K22
Suggested Citation: Suggested Citation