The effect of environmental corporate social responsibility on a dynamic polluting oligopoly

This study examines how corporate social responsibility (CSR) practices by oligopolistic firms impact pollution levels in a steady state. I develop a dynamic game model for polluting firms that adopt CSR. The analysis reveals that a firm’s CSR awareness drives its production strategy to align with the socially optimal level in both open-loop Nash equilibrium and Markov perfect Nash equilibrium. Achieving this social optimum is possible if firms are fully committed to CSR. The study explores two scenarios: excess pollution or underproduction, which depend on the pollutant’s impact on utility. Notably, when the pollutant’s damage to utility is significant, even a modest commitment to CSR can effectively reduce excessive pollution. These findings offer valuable insights for government policy, suggesting that stringent environmental regulations might be less necessary if firms are attentive to CSR.