Moral management in competitive markets

Abstract

The intrinsic motivation of a firm’s management for engaging in prosocial behavior is an important determinant of a firm’s social conduct. I provide the first model in which firms run by morally motivated managers engage in corporate social responsibility (CSR) in a competitive setting. Moral management crowds out a competitor’s strategic CSR, increasing profitability and leading shareholders to strategically delegate moral managers, although necessary for socially optimal CSR is that shareholders be morally motivated as well. Shareholders appoint managers that engage in a socially excessive amount of CSR, counter to existing literature, whenever product‐market competition is sufficiently intense.

A Duopolistic Analysis of CEO Competitive Aggressiveness with R&D Investment

“…This study is also related with strategic delegation, whereby firms design incentive structures for managers to affect their decisions and ultimately to obtain desirable competitive interactions with their rivals and greater firm profits (Arya et al., 2019; Sengul et al., 2012). In this respect, compensation schemes for managers have been widely discussed; these schemes consider not only firm profits but also other market interests, such as sales (Fershtman, 1985; Fershtman and Judd, 1987; Vickers, 1985), market shares (Jansen et al., 2007) and revenues (Sklivas 1987), or the interests of other diverse stakeholders, such as consumers (Arya et al., 2019), competitors (Miller and Pazgal, 2001), the environment (Lambertini et al., 2016; Martin, 2019) and society (Fershtman, 1990). In addition, decentralized decisions (Arya and Mittendorf, 2006; Arya et al., 2014; Balasubramanian and Bhardwaj, 2004), transfer pricing (Dockner and Fruchter, 2014), and biased psychological preferences (Gervais et al., 2011) are considered in strategic delegation for managers.…”