The Economics of Corporate Social Responsibility

7 Pages Posted: 30 May 2017

See all articles by Peter Marcel Debaere

Peter Marcel Debaere

University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)

Jay Shimshack

University of Virginia - Frank Batten School of Leadership and Public Policy

Date Written: August 10, 2016

Abstract

Corporate social responsibility (CSR) refers to the voluntary decision of companies to address social and environmental concerns by contributing to a public good, reducing external costs, and increasing fairness or distributional equity. CSR is looked at from an economic point of view, focusing on environmental and natural resource issues with a particular emphasis on water. The term CSR is first clarified and contextualized before being situated in the economics literature. This note studies CSR from an economic angle, and looks at how it is in line with economic incentives. It focuses on: (1) the extent to which there is a need for CSR in terms of the characteristics of the economic environment that make CSR policies effective; and (2) how CSR policies interact with firms' operations and profit maximization. This technical note supports cases in the Darden course elective, “The Global Economics of Water.”

Excerpt

UVA-GEM-0143

Aug. 10, 2016

The Economics of Corporate Social Responsibility

The term corporate social responsibility (CSR) is often used these days. CSR refers to the voluntary decision of companies to address social and environmental concerns by contributing to a public good, reducing external costs, and increasing fairness or distributional equity. In this note, we look at CSR from an economic point of view. We focus on environmental and natural resource issues with a particular emphasis on water. We first clarify and contextualize the term CSR before we situate it in the economics literature.

Public goods are nonexcludable and also provide benefits to those who don't buy a company's products. External costs are, by definition, social costs that are not directly borne by the firm.

Paying fair wages may be less economically efficient than paying lower market wages. Companies undertaking CSR may therefore seem to be going beyond their own self-interest. CSR need not negatively affect a company's bottom line, however. Emphasizing the organic nature of a product, for example, can be an integral part of positioning or branding a product or company. Reducing materials waste may generate costs savings and satisfy supply chain requirements of business-to-business customers, such as Wal-Mart. Similarly, funding conservation projects in water basins may in fact be an effort by beverage companies to reduce the risk of being adversely affected by water scarcity.

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Keywords: corporate social responsibility, externalities, welfare economics

Suggested Citation

Debaere, Peter Marcel and Shimshack, Jay, The Economics of Corporate Social Responsibility (August 10, 2016). Darden Case No. UVA-GEM-0143, Available at SSRN: https://ssrn.com/abstract=2974571

Peter Marcel Debaere (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/html/direc_detail.aspx?styleid=2&id=5794

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jay Shimshack

University of Virginia - Frank Batten School of Leadership and Public Policy ( email )

235 McCormick Rd.
P.O. Box 400893
Charlottesville, VA 22904-4893
United States

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