A Positive Theory of Moral Management, Social Pressure, and Corporate Social Performance

35 Pages Posted: 13 Jul 2006 Last revised: 2 Aug 2014

See all articles by David P. Baron

David P. Baron

Stanford University - Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2006

Abstract

This paper provides a theory of firm behavior motivated by moral duty, self-interest, and social pressure. A morally-managed and a self-interested firm compete in a market in which their corporate social performance (CSP) provides product differentiation. In addition to acting as consumers, citizens have warm glow preferences for personal giving to social casues, holding shares in firms providing CSP, and contributing to social pressure to increase CSP. Social pressure is delivered by an activist NGO funded by voluntary contributions by citizens. The activist selects a target, demands social action by the target, and threatens harm. The target can fight the activist campaign, but both parties have an incentive to bargain to a resolution. The model charaterizes an equilibrium in the product market, the capital market, and the market for social pressure. The equilibrium establishes a price for CSP and for activist-induced social action. The theory provides predictions of the market values of firms, the prices of products, firm profits, target selection, contributions to the activist, and the amount of CSP. For example, if citizens do not distinguish between morally-motivate CSP and CSP induced by social pressure, the activist is more likely to tarket the softer, morally-motivated firm. Higher quality activists are better funded, target self-interested firms, and obtain greater social action. Lower quality activists target morally-managed firms.

Keywords: corporate social responsibility, microeconomics, politics

JEL Classification: M14, D72, H41

Suggested Citation

Baron, David P., A Positive Theory of Moral Management, Social Pressure, and Corporate Social Performance (June 1, 2006). Stanford University Graduate School of Business Research Paper No. 1940, Rock Center for Corporate Governance Working Paper No. 36, Available at SSRN: https://ssrn.com/abstract=913808 or http://dx.doi.org/10.2139/ssrn.913808

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