Corporate Social Responsibility and Managerial Bonus Systems

Abstract

This paper analyses the effects of managerial delegation on the equilibrium outcomes in a duopoly market in which firms adopt corporate social responsibility (CSR) behaviours (approximately measured, as usual, by their sensitivity to consumer surplus). In particular, the endogenous choice between the most common manager's bonus schemes-i.e. sales delegation (D), "relative profits" (RP) and "pure CSR objective function" (PCSR)-is investigated making use of a standard game-theoretic approach. It is shown that the sub-game perfect Nash equilibrium is given by the common choice of the RP scheme, whereas the CSR firm's objective function would be highest (lowest) under the PCSR (D) choice. Therefore, the well-known prisoner's dilemma nature of the managerial delegation game holds also when firms adopt CSR behaviours. Overall, these findings shed new light on the issue of the managerial delegation in the recently increasing cases of socially concerned firms.

Managerial delegation games and corporate social responsibility

“…This result is in line with the observation of Jansen et al (), who remark that, in a context without CSR, a managerial bonus based on “relative profits” turns out to be the more profitable one “confirms, in the delegation context, Holmström's () finding that a team (here, the owner–manager team) can maximise their joint achievement by using relative performance incentives” (p. 147). Moreover, Result partially confirms the finding of Fanti and Buccella () in which, in a 3 × 3 managerial delegation game with the same alternative bonus schemes, but where owners choose the managerial compensation to maximises the CSR value function rather than private profits, the RP scheme is the strictly dominant strategy of the game for every feasible value of the CSR parameter. On the other hand, with regards to the asymmetric equilibria for k ≥ k * , the extension of the game from a 2 × 2 structure to a 3 × 3 structure magnifies the effects described in Section .…”

Does CSR influence privatization wave?

“…2 2 See the theoretical works of Manasakis et al (2013), Liu et al (2015), Fanti and Buccella (2017, 2018a, 2018b), and Liu et al (2018). …”

“…Hence, consider consumer surplus as being called “Cheap‐Talk” CSR. See Fanti and Buccella (2017, 2018a, 2018b), Kim et al (2019), and Liu et al (2018).…”