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Corporate Social Responsibility and International Competition: A Welfare Analysis
Author(s) -
Chang YangMing,
Chen HungYi,
Wang Leonard F. S.,
Wu ShihJye
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12117
Subject(s) - stylized fact , economics , corporate social responsibility , economic surplus , imperfect competition , duopoly , tariff , competition (biology) , profit (economics) , social welfare , welfare , microeconomics , pareto principle , cournot competition , dominance (genetics) , market economy , industrial organization , international economics , macroeconomics , ecology , political science , law , biology , biochemistry , operations management , chemistry , gene
This paper examines the welfare implications of corporate social responsibility ( CSR ) in international markets under imperfect competition. Based on a stylized model of an import‐competing duopolistic market, we show the feasibility of moving toward tariff reductions when both domestic and foreign firms launch CSR initiatives in that their payoffs include not only individual profits, but also the benefits of consumers. For the case where the foreign exporter unilaterally adopts the consumer‐oriented CSR as a strategy, there is a rent‐shifting effect because the foreign firm's payoff increases whereas the domestic firm's profit decreases. In response, the importing country's government raises its tariff on the foreign product. If, instead, the domestic firm adopts the CSR strategy unilaterally, the rent‐shifting effect disappears and both the competing firms’ payoffs increase. We further identify the conditions under which the CSR initiatives of the firms constitute the dominant strategy, leading to a Pareto efficient outcome at which the firms’ payoffs, consumer surplus, and social welfare are at their maximum levels.