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Exit versus Voice

Author

Listed:
  • Eleonora Broccardo
  • Oliver Hart
  • Luigi Zingales

Abstract

We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in a world where companies generate externalities and some agents care about the social impact of their decisions. We show that if the majority of investors are even slightly socially responsible, voice achieves the socially optimal outcome. In contrast, exit does not unless everybody is significantly socially responsible. If the majority of investors are purely selfish, exit is a more effective strategy, but neither strategy generally achieves the first best. We also show that exit can sometimes reduce social welfare.

Suggested Citation

  • Eleonora Broccardo & Oliver Hart & Luigi Zingales, 2022. "Exit versus Voice," Journal of Political Economy, University of Chicago Press, vol. 130(12), pages 3101-3145.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/720516
    DOI: 10.1086/720516
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    Cited by:

    1. Matthew E. Kahn & John Matsusaka & Chong Shu, 2023. "Divestment and Engagement: The Effect of Green Investors on Corporate Carbon Emissions," NBER Working Papers 31791, National Bureau of Economic Research, Inc.
    2. KEIDA Masayuki & TAKEDA Yosuke, 2024. "How Loud is a Soft Voice? Effects of positive screening of ESG performance on the Japanese oil companies," Discussion papers 24002, Research Institute of Economy, Trade and Industry (RIETI).
    3. Olga Chiappinelli & Konstantinos G. Papadopoulos & Dimitrios Xefteris, 2023. "Common Ownership Unpacked," UB School of Economics Working Papers 2023/448, University of Barcelona School of Economics.

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