Externalities of Responsible Investments

97 Pages Posted: 17 Aug 2022 Last revised: 28 Sep 2023

See all articles by Alessio Piccolo

Alessio Piccolo

Indiana University - Kelley School of Business

Jan Schneemeier

Indiana University - Kelley School of Business

Michele Bisceglia

University of Bergamo - Department of Management, Economics and Quantitative Methods; University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: August 7, 2022

Abstract

We develop a model to study the efficiency of socially responsible investing (SRI) as a market-based mechanism to control firms' externalities. When responsible and profit-motivated investors interact, the former tend to concentrate on a subset of firms in the economy, while excluding others. This concentration of responsible capital can mitigate free-riding and coordination issues in the adoption of green technologies, but it can also create product market power and crowd out the green investments of excluded firms. If the crowding-out dominates, firms' aggregate green investments and welfare are higher without SRI. In equilibrium, responsible capital concentrates the most when concentration is the least desirable.

Keywords: Socially responsible investment, divestment, engagement, externalities, governance

JEL Classification: D62, G34, M14

Suggested Citation

Piccolo, Alessio and Schneemeier, Jan and Bisceglia, Michele and Bisceglia, Michele, Externalities of Responsible Investments (August 7, 2022). Available at SSRN: https://ssrn.com/abstract=4183855 or http://dx.doi.org/10.2139/ssrn.4183855

Alessio Piccolo (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
+18123914734 (Phone)

HOME PAGE: http://https://kelley.iu.edu/faculty-research/faculty-directory/profile.cshtml?id=APICCOL

Jan Schneemeier

Indiana University - Kelley School of Business ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

Michele Bisceglia

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

University of Bergamo - Department of Management, Economics and Quantitative Methods ( email )

Salvecchio 19
Bergamo, 24129
Italy

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