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Compliance with socially responsible norms of behavior: reputation vs. conformity

Author

Listed:
  • Virginia Cecchini Manara

    (University of Trento)

  • Lorenzo Sacconi

    (University of Milan)

Abstract

The Social Responsibility of Business usually involves self-regulation, which entails spontaneous compliance with social norms or standards that are not imposed by hard law. In this paper we discuss the mechanisms that lead economic agents to comply with socially responsible norms that are not legally enforced, and do not coincide with profit, or self-interest, maximization. Companies exist because individuals need to cooperate and some institutions can facilitate cooperation, but at the same time these institutions may turn into places where unfair distributions are amplified and cooperative behaviours and motivations disrupted. The agents who decide to organize themselves into firms are usually motivated by the need to earn some benefit from mutual cooperation: since they have limited knowledge and bounded rationality, team production can highly improve their results. Therefore the main motivation to enter an organization is to gain from cooperation; but this also brings problems of how to divide the surplus that is generated and we find conflicts on the attribution of benefits among stakeholders, with a particular problem of abuse of authority by those who hold power. One of the drivers of socially responsible behaviour is the quest for reputation, which in turn induces a cooperative response from the stakeholders. This can be described in game-theoretical terms with a repeated Trust Game between a trustor (the stakeholder) and a trustee (the management of the firm). The problem with reputation is that it is compatible with multiple equilibria, included the one in which stakeholders always trust the firm, and the firm often abuses this trust. This leads to consider an alternative mechanism for norm compliance: conformity and reciprocity that derive from an impartial agreement among stakeholders. The present work analyses in depth the role of an agreement on cognitions and motivations, grounding on insights from psychology, game theory and experimental findings.

Suggested Citation

  • Virginia Cecchini Manara & Lorenzo Sacconi, 2019. "Compliance with socially responsible norms of behavior: reputation vs. conformity," Econometica Working Papers wp73, Econometica.
    • Handle: RePEc:ent:wpaper:wp73
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    References listed on IDEAS

    as
    1. Virginia Cecchini Manara & Lorenzo Sacconi, 2019. "Institutions, Frames, and Social Contract Reasoning," Econometica Working Papers wp71, Econometica.
    2. Drew Fudenberg & David K. Levine, 2008. "Reputation And Equilibrium Selection In Games With A Patient Player," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 7, pages 123-142, World Scientific Publishing Co. Pte. Ltd..
    3. Marco Faillo & Stefania Ottone & Lorenzo Sacconi, 2015. "The social contract in the laboratory. An experimental analysis of self-enforcing impartial agreements," Public Choice, Springer, vol. 163(3), pages 225-246, June.
    4. Drew Fudenberg & David K. Levine, 2008. "Maintaining a Reputation when Strategies are Imperfectly Observed," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 8, pages 143-161, World Scientific Publishing Co. Pte. Ltd..
    5. Arthur T. Denzau & Douglass C. North, 1994. "Shared Mental Models: Ideologies and Institutions," Kyklos, Wiley Blackwell, vol. 47(1), pages 3-31, February.
    6. Lorenzo Sacconi & Marco Faillo, 2010. "Conformity, reciprocity and the sense of justice. How social contract-based preferences and beliefs explain norm compliance: the experimental evidence," Constitutional Political Economy, Springer, vol. 21(2), pages 171-201, June.
    7. Lorenzo Sacconi, 2013. "Ethics, economic organization and the social contract," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 7, Edward Elgar Publishing.
    8. Lorenzo Sacconi, 2011. "A Rawlsian View of CSR and the Game Theory of its Implementation (Part II): Fairness and Equilibrium," International Economic Association Series, in: Lorenzo Sacconi & Margaret Blair & R. Edward Freeman & Alessandro Vercelli (ed.), Corporate Social Responsibility and Corporate Governance, chapter 8, pages 194-252, Palgrave Macmillan.
    9. Gianluca Grimalda & Lorenzo Sacconi, 2005. "The Constitution of the Not-For-Profit Organisation: Reciprocal Conformity to Morality," Constitutional Political Economy, Springer, vol. 16(3), pages 249-276, September.
    10. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
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    More about this item

    Keywords

    corporate culture; CSR; social contract; agreement; trust game;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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