August 04, 2006
Profit-Maximizing CSR
Posted by Fred Tung

A new empirical paper has come out offering yet more evidence that firms generally treat corporate social responsibility as a tool for profit maximization:  firms that anticipate economic benefits from CSR are more likely to do it.  (See here, e.g.).  Theory suggests that firms that need to resolve information asymmetry for their consumers may rely on CSR activities to do so.  For example, firms selling difficult-to-evaluate goods may use CSR activities to signal product quality.

This recent study by Siegel and Vitaliano (both from RPI) offers confirmation of this prediction, showing that firms selling experience goods and credence goods are more likely to be socially responsible than firms selling search goods.  (Search goods are goods that consumers can generally evaluate before they buy--clothing, for example.  Experience goods and credence goods are more difficult to evaluate.  Experience goods generally need to be used by the consumer before she can evaluate their quality.  An automobile may be such a good.  Credence goods are difficult to evalute even after the consumer has used the good.  Vitamins or car repairs are examples.).

Siegel & Vitaliano show that firms selling a credence good are 23% more likely to engage in CSR; firms that sell experience goods are about 15% more likely to be socially responsible.

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