Corporate Social Responsibility by Joint Agreement
Tinbergen Institute Discussion Paper 2021-063/VII
51 Pages Posted: 8 Jul 2021 Last revised: 12 Oct 2021
Date Written: July 4, 2021
Industry-wide voluntary agreements are touted as a means for corporations to take more corporate social responsibility (CSR). We study what type of joint CSR agreement induces competitors to increase CSR efforts in a model of oligopolistic competition with differentiated products. Consumers have a willingness to pay for more responsibly manufactured products. Firms are driven by profit, and are also possibly intrinsically motivated, to invest in CSR efforts. We find that cooperative agreements directly on the level of CSR reduce CSR efforts compared to competition. Such agreements throttle both for-profit and intrinsic motivation for CSR. CSR efforts only increase if agreements are permitted solely on output. Such production agreements, however, reduce total welfare in the market and raise antitrust concerns. Taking externalities into account may help justify a production agreement under a broader welfare standard, but not agreements on CSR directly. Moreover, simply requiring a higher CSR level by regulation while preserving competition always gives higher within-market welfare.
Keywords: CSR, voluntary agreement, cartel, competition policy, externalities, regulation
JEL Classification: K21, L13, L40, Q01
Suggested Citation: Suggested Citation