In theory, consumers could send money to directly supplement the income of workers in the coffee plantations supplying Starbucks. But they would have to be informed about the occurrence of individual trades and contracts, and their ﬁnancial transfers would involve enormous transaction costs. Somehow, philanthropy must thus be delegated. It could perhaps be entrusted to some charitable organization, but transaction costs are still likely to be much lower if delegation goes through the corporation, which already is involved in a ﬁnancial relationship with the workers….
the desired actions are often not about transferring income to less-favoured populations, but about refraining from speciﬁc behaviours, such as polluting the environment; here there is no substitute for asking the ﬁrm to behave well when the state does not impose constraining regulations
A related case is when a ﬁrm draws on its technical expertise or exploits complementarities to deliver goods and services to those in need more efﬁciently than governments or other philanthropic ‘intermediaries’ could. Examples include a giant supermarket chain organizing relief convoys to a zone hit by a hurricane, or a large water-treatment utility setting up a programme of digging water wells for poor, remote villages in a developing country.)
When CSR expenditure is low, we expect that it should contribute positively to firm value, for example, by increasing the productivity of employees or by avoiding reputational or pollution-related costs and fines. But at some point, however, the marginal effect of an additional dollar of CSR expenditure must decrease shareholder wealth as there is no limit to the amount that a firm can transfer to its stakeholders.… firm’s insiders (corporate managers, directors, and large blockholders) may have an incentive to increase CSR expenditure to a level that is higher than that which maximizes firm value if they gain private benefits from a high CSR rating. For example, a favorable CSR rating can enhance their reputation as individuals who respect their employees, communities, and the environment.
when everyone behaves in a socially responsible way, no one gets credit for it Individuals with intrinsic motivation (altruism) above some threshold receive the honour attached to participation, while those below it abstain and suffer stigma. When participation increases, the honour involved decreases (prosocial behaviour becomes more common) and the stigma for not participating increases (only the ‘very bad apples’ do not participate). The socially optimal incentive rate should therefore be lower than the usual Pigovian level: it must subtract from the standard externality cost the image value implicitly ‘bought’ by the individual or ﬁrm… efﬁcient furnaces may need to be subsidized more than hybrid cars.