Paper #1491

Title:

The role of public information in corporate social responsibility

Authors:

Aleix Calveras and Juan José Ganuza

Date:

February 2015

Abstract:

Many of the attributes that make a good 'socially responsible' are credence attributes that cannot be learned by consumers either through search or experience. Consumers, then, use for their purchasing decisions 'noisy' information about these attributes obtained from potentially contradictory channels (media, advertisement, NGOs). In this paper we model such informational framework and show the positive relationship between the accuracy of the information transmitted to consumers and corporate social responsibility (CSR). We also show that a firm may be tempted to add noise to the information channel (through lobbying of the media), which might reduce the supply of the CSR attributes and even harm the firm itself (with lower profits). It might then be profitable to the firm to commit ex-ante to not manipulate the information regarding the firm's business practices (e.g., with a partnership with an NGO). Finally, we extend our model to a competition framework endogenizing the number of firms active in the CSR segment. We show both that in more transparent markets a larger number of firms will be CSR, and that in a market with more intense competition, a higher degree of transparency is required in order to sustain a given number of CSR firms.

Keywords:

credence good, information asymmetry, corporate social responsibility, regulation, NGO, competition.

JEL codes:

D72, H42, L51, M14, Q52.

Area of Research:

Business Economics and Industrial Organization

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