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We apply the theory of corporate social responsibility to analyse social welfare investment undertaken by Chinese State Owned Enterprises (SOEs). We present a simple theoretical model to illustrate how the presence of social objectives in the firm's objective function changes its investment behaviour. Our theoretical model accommodates special features of Chinese SOEs, whose social welfare investment is driven by both social objectives and profit concerns. The model is then tested using a panel of Chinese enterprises during the period 1995-1999. The empirical analysis indicates that despite of the corporatization reform social welfare investment undertaken by Chinese SOEs is still inefficient due to the lack of profit concerns, suggesting that social objectives still dominate profit concerns in motivating the SOEs' social welfare investment. However, we do obtain clear-cut evidence showing that social objectives become less important as time progresses. Copyright (c) 2009 The Authors. Journal compilation (c) 2009 Scottish Economic Society.

In a vertical differentiation model where both duopolists supply the same two qualities of an otherwise homogeneous product, we derive the critical level of the interfirm switching cost needed to sustain monopoly pricing. In particular, we show how a decrease in the intrafirm switching cost may cause a decrease in this critical value, thereby facilitating monopoly pricing. We apply the results to a setting with green and nongreen products-in particular electricity-and discuss implications for policy measures intended to stimulate the production and consumption of green products.

Welfare is often administered locally, but financed through grants from the central government. This raises the question how the central government can prevent local governments from spending more than necessary. Block grants are more efficient than matching grants, because the latter reduce the local governments' incentive to limit welfare spending. However, conventional block grant financing is less equitable, indeed, it may put a heavy burden on local governments in economically weak regions. This paper considers block grants which depend on exogenous spending need determinants, and are estimated from previous period welfare spending. This allocation method gives rise to perverse incentives by reducing the marginal costs of welfare spending. We derive the conditions for such a grant to be more efficient than a matching grant, and apply our results to the Netherlands, where such a grant exists since 2004. We conclude that the Dutch style grant is likely to be more efficient than a matching grant. As it is also more equitable, other countries might want to consider introducing a similar grant.

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