Barboza, Gustavo A. and Trejos, Sandra, An Economic Model of Corporate Social Responsibility Under Global Warming (September 5, 2011)
“Abstract: This study develops a model for the profit maximizing firm with corporate social responsibility behavior as compatible and mutual goals to effectively reduce negative effects of global warming externalities. Our model results indicate that under perfect competitive unregulated markets, characterized by perfect substitutes products, firms must take an innovative entrepreneurship approach to reduce externalities resulting in global warming effects. In this setting, firms find incentives to pursue strategies leading to horizontal differentiation when a segment of the market has strong revealed consumption preferences for environmentally friendly products, and when consumers derive a consumption disutility from products creating global warming effects. Firms using a safe technology must also incur certification/labeling costs in order to gain market power and maximize profits above normal profits otherwise found in competitive markets. Finally, our results demonstrate that in unregulated competitive markets, efforts to clearly identify sources of global warming effects require innovative entrepreneurship thinking above and beyond government regulatory efforts. Thus, firms behaving in a CSR fashion achieve monopolistic power and therefore positive profits.”
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