Externalities of Responsible Investments

78 Pages Posted: 17 Aug 2022 Last revised: 5 Dec 2022

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 framework to explore the equilibrium implications of socially responsible investments (SRI). Investors acquire positions in ex-ante identical firms, and firms compete in selling products to consumers. A fraction of investors and consumers are socially responsible in that they value corporate social responsibility (CSR). They shape CSR policies through shareholder engagement and consumption choices, respectively. Responsible investors prefer to invest in stocks with a large proportion of like-minded investors, which leads to a concentration of responsible capital in a small subset of firms. In equilibrium, these firms' CSR investments crowd out those of the excluded firms, generating differentiation across firms and market power. If this crowding-out dominates, aggregate CSR investments and welfare are higher without SRI.

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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