Transcript A Behavioral Model of Corporate Social Responsibility Shinji Teraji

A Behavioral Model of
Corporate Social
Responsibility
Shinji Teraji
Yamaguchi University
IAREP/SABE 2008 Conference
Corporate Social
Responsibility (CSR)
CSR is “a concept whereby companies
integrate social and environmental
concerns in their business operations and
in their interaction with their stakeholders
on a voluntary basis” (Commission of the
European Communities, 2001, p.6).

Friedman or…
Milton Friedman (1970) wrote that
the social responsibility of a business
was to increase its profits.

Managers are obliged by contract to
shareholder value.

…Freeman
Freeman (1984) encourages
consideration of external stakeholders
beyond direct profit maximization.

It can be beneficial for the company to
engage in certain CSR activities that
stakeholders perceive to be important.

The Behavioral Theory
of the Firm
A core idea in the behavioral theory
of the firm (Leibenstein, 1986) is the
importance of organizational slack.
 The behavioral theory of the firm has
the potential to incorporate morality as
a critical component of the underlying
motivating structure.

Consumers
Consumers are one group particularly
sensitive to a company’s social
performance.


Consumers’ perceptions of a company
as socially oriented are associated with
a higher level of trust in that company
and its products.
Manager
 The
manager has a key role in the
CSR strategy, using the corporate
resources to achieve its goals.
manager may reflect consumers’
attitudes that are influenced by social
preferences.
 The
Setting (1)
CSR is discussed as “collaboration”
between the manager and the consumers
in the social environment.

 The
model analyzes two dimensions of
endogenous preferences: the consumer’s
taste for CSR and the manager’s taste
for CSR.
Setting (2)
A public good can be provided by the
firm in the form of CSR (Besley and Ghatak,
2007).
 The manager perceives social satisfaction
from the company’s image or the expectations
of consumers.
 The motivation underlying CSR activities is
modeled in terms of social satisfaction that the
manager perceives.

Consumer’s Utility Function
U = ln((1−α)w) +α g.
 The consumer valuates the social
expenditures g by a fraction α.
 The fraction α is considered as the
consumer’s taste for CSR.
 The consumer’s taste for the private
good becomes (1−α)w.
Manager’s Utility Function
V = ln((1−β)π) + β(h g − g)
The fraction β is considered as the
manager’s taste for CSR.
 The manager perceives social satisfaction
h from one unit of the public good.
 By choosing g, the manager contributes
to the private provision of a public good.

Theoretical results (1)
Companies operating at the high level of
social satisfaction (h >1) focus on meeting
the expectations of moral consumers (α > 0).
 Managers then facilitate the ethical
development to be motivated beyond their
self-interest (β > 0).
 More of the public good is provided ( g > 0)
when consumers are more likely to value
corporate social performance.

Theoretical results (2)
Companies operating at the low level of
social satisfaction (0 < h < 1) are not taking
moral issues into account (β = 0), and their
decisions are perceived to be immoral by
consumers (α = 0).
 No public good is then provided by
companies as part of their business strategy
( g = 0).

Summary
CSR is identified with the private provision
of a public good in the model.

The model analyzes two dimensions of
preferences: the consumer’s taste for CSR (α)
and the manager’s taste for CSR (β).

The manager’s taste for CSR is influenced
by the consumer’s taste for CSR, and vice
versa.

Thank You.