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Partially Observable Corporate Social Responsibility: The Limits of Differentiation

Author

Listed:
  • Aleix Calveras

    (Universitat de les Illes Balears)

  • Jozsef Sakovics

    (Universitat de les Illes Balears and School of Economics, University of Edinburgh)

Abstract

We investigate investment incentives in credence corporate social responsibility (CCSR) under different market structures. In duopoly, for high enough market transparency the Örms differentiate their product by (only) one of them investing in the SR (clean) technology. If the firms merge, with high enough market transparency (and product traceability) the monopolist also invests in (only) one plant but the necessary market transparency is higher, so competition promotes CCSR. When market transparency lacks product traceability, whenever the monopolist invests it is in both plants, but the consumer information needed regarding the technologies being used by the firm is even higher. Overall we Önd that the market pushes toward product differentiation, which is both good and bad: there is usually some investment by a firm, but also some factory producing with the dirty technology. We conclude that ìgreenîcompetition policy must be nuanced, taking into account (or regulating) both transparency and traceability.

Suggested Citation

  • Aleix Calveras & Jozsef Sakovics, 2021. "Partially Observable Corporate Social Responsibility: The Limits of Differentiation," Edinburgh School of Economics Discussion Paper Series 305, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:305
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    Keywords

    Credence goods; Asymmetric information; Transparency; Traceability;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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