The Stakeholder Corporation and Social Welfare

59 Pages Posted: 9 Aug 2021 Last revised: 11 Nov 2021

Date Written: November 11, 2021

Abstract

Abstract The stakeholder (or responsible) firm is defined in this paper as one that maximizes the (weighted or unweighted) sum of the surpluses of its customers and suppliers (including workers). We show that, although this objective is hard to empirically measure, it can be pursued by simple management rules that rely on constrained profit maximization. We find that unconstrained profit maximization gives a competitive edge to ordinary firms, but that stakeholder firms are better for social welfare and internalize several important effects of their activities on society. We also show that long term entry decisions should rely on profit modified by Pigouvian pricing of externalities, incidentally providing a novel justification for the polluter-pays principle.

Keywords: stakeholder, shareholder value, profit, Pigou tax

JEL Classification: D21, D40, D60, L21

Suggested Citation

Fleurbaey, Marc and Ponthiere, Gregory, The Stakeholder Corporation and Social Welfare (November 11, 2021). Available at SSRN: https://ssrn.com/abstract=3900451 or http://dx.doi.org/10.2139/ssrn.3900451

Marc Fleurbaey (Contact Author)

Paris School of Economics ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Gregory Ponthiere

UCLouvain ( email )

Chaussée de Binche, 151
Mons, 7000

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