R&D Organization and Corporate Social Responsibility Specialization

Abstract

Given the empirical evidence that firms care about corporate social responsibility (CSR) and may need to focus on specific CSR dimensions, this paper analyzes the scope of CSR of firms. We study whether the scope of CSR should be broad, including production and R&D investment decisions, or narrow, considering only production decisions. It depends on the concern of firms about CSR and on the way firms organize their R&D. When firms do not cooperate when making R&D investment, they choose a broad scope of CSR, which is consistent with the government’s preferences. However, there is a prisoner’s dilemma, and firms are better off agreeing to choose a narrow scope. If firms cooperate to conduct a research joint venture (RJV) in which they fully share their technological knowledge, firms adopt a narrow CSR if their social concern is high enough; otherwise they choose a broad CSR. Moreover, when the social concern is high, the government should discourage an RJV because it prefers firms not to cooperate and adopt broad CSR. However, when social concern is intermediate, encouraging an RJV could lead to the socially preferred narrow CSR.

Keywords: Corporate social responsibility, R&D Duopoly, Research Joint Venture