Exit vs. Voice

58 Pages Posted: 18 Aug 2020 Last revised: 23 Nov 2021

See all articles by Eleonora Broccardo

Eleonora Broccardo

University of Trento

Oliver Hart

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: November 1, 2021

Abstract

We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies that generate externalities. We show that if the majority of investors are socially responsible, voice achieves the socially desirable outcome, while exit does not. If the majority of investors are purely selfish, exit is a more effective strategy, but neither strategy generally achieves the first best. We also show that individual incentives to join an exit strategy are not aligned with social incentives, and hence exit can lead to a worse outcome than if all individuals are purely selfish.

Keywords: Exit, Voice, Social Responsibility, Divestment, Boycott, Engagement

JEL Classification: D02, D21, D23, D62, D64, H41, L21

Suggested Citation

Broccardo, Eleonora and Hart, Oliver D. and Zingales, Luigi, Exit vs. Voice (November 1, 2021). European Corporate Governance Institute – Finance Working Paper No. 694/2020, Available at SSRN: https://ssrn.com/abstract=3671918 or http://dx.doi.org/10.2139/ssrn.3671918

Eleonora Broccardo

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

Oliver D. Hart

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-3461 (Phone)
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National Bureau of Economic Research (NBER) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Luigi Zingales (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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