Exit vs. Voice
Harvard Law School John M. Olin Center Discussion Paper # 1061
54 Pages Posted: 28 Aug 2020 Last revised: 24 Jun 2022
Date Written: April 22, 2022
We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies. We show that in a competitive world exit is less effective than voice in pushing firms to act in a socially responsible manner. Furthermore, we demonstrate that individual incentives to join an exit strategy are not necessarily aligned with social incentives, whereas they are when well-diversified investors are allowed to express their voice. We discuss what social and legal considerations might sometimes make exit preferable to voice.
Keywords: Exit, Voice, Social Responsibility, Divestment, Boycott, Engagement
JEL Classification: D02, D21, D23, D62, D64, H41, L21
Suggested Citation: Suggested Citation