An Economic Case for CSR: The Comparative Efficiency of For-Profit Firms in Meeting Consumer Demand for Social Goods

Abstract

We develop a formal model of CSR, with both a for-profit and a non-profit organization providing social goods to needy recipients and competing for resources from consumers. We show that CSR results in financial benefit if it is either related to the firm’s core business, or non-overlapping with non-profit efforts, but only leads to social benefit if both conditions apply, with these relationships being moderated by the firm’s core business capabilities. Our paper thus makes a case for CSR based on the comparative efficiency of for-profits in providing social goods relative to non-profits, while also highlighting the potential divergence between the financial and social impact of CSR. In addition, it offers new insights into the heterogeneity of CSR, and the role of non-profits and hybrids.

Keywords: corporate social responsibility; market for social goods; Pareto optimality; nonprofit; formal model

JEL Classification: M14, L3, D21, D6