Individual firm and market dynamics of CSR activities

Abstract

This paper investigates how firms should plan corporate social responsibility (short CSR). This dynamic analysis starts with a firm's intertemporal optimization problem, and proceeds to analyze interactions with other firms, which are crucial: if CSR is profitable for firm A then it is most likely also profitable for competitors B and C, and these simultaneous decisions affect the gain each would achieve from trying to advance its own position. We find that multiple equilibria exist, irrespective of whether interactions with other firms are taken into account. Interactions can eliminate or create additional steady states and can lead to a situation in which history is insufficient to determine the long run outcome among multiple steady states, so that coordination is beneficial.