Law, Social Responsibility, and Outsourcing

48 Pages Posted: 18 Nov 2014 Last revised: 27 Jan 2016

See all articles by Qiang Fu

Qiang Fu

National University of Singapore (NUS)

Jie Gong

National University of Singapore (NUS) - Department of Business Policy

Ivan P. L. Png

National University of Singapore (NUS)

Date Written: October 2015

Abstract

Previous research into law and corporate social responsibility mostly assumes that the vertical structure of production is exogenous. By outsourcing, a brand may avoid some liability and responsibility, but lose direct control over the evasive actions that cause harm. Here, we analyze the trade off between avoidance of liability and control over evasion. (i) Evasive actions reduce production costs, and so, evasion increases with the speed/scale of production. Under outsourcing, the brand may depress speed/scale to induce less evasion. (ii) Maximizing welfare requires comparing welfare under vertical integration and outsourcing, and so, is an inherently non-convex problem. (iii) If demand is elastic, the cost of production is high or enforcement is weak, then vertical integration is optimal. It discretely raises welfare by raising production speed/scale (increasing consumer benefit by more than production costs), and lowering evasion (reducing harm by more than it raises production costs).

Keywords: Law, corporate social responsibility, outsourcing, vertical integration

JEL Classification: L02, F02, J03

Suggested Citation

Fu, Qiang and Gong, Jie and Png, Ivan P. L., Law, Social Responsibility, and Outsourcing (October 2015). Available at SSRN: https://ssrn.com/abstract=2526666 or http://dx.doi.org/10.2139/ssrn.2526666

Qiang Fu

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Jie Gong (Contact Author)

National University of Singapore (NUS) - Department of Business Policy ( email )

15 Kent Ridge Drive, Mochtar Riady Build
Singapore 117591, 119245
Singapore

Ivan P. L. Png

National University of Singapore (NUS) ( email )

Singapore, 117543
Singapore
+65 6516-6807 (Phone)

HOME PAGE: http://sites.google.com/site/iplpng/

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