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: Suggested Citation