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Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare

Author

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  • Michele Fioretti

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

Many firms claim that "social impact" influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures because consumers' willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfareenhancing tax with limited pass-through.

Suggested Citation

  • Michele Fioretti, 2022. "Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare," Post-Print hal-03791920, HAL.
    • Handle: RePEc:hal:journl:hal-03791920
    DOI: 10.1086/720459
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03791920
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