The Price of Praise in the Market for Virtue: A Paradox of Rating and Recognizing Responsibility

Abstract

In this article, I investigate the performance effects of positive ratings. Building upon theoretical insights from behavioral and performance feedback theory, I hypothesize that ratings that recognize and reward past superior performance can paradoxically lead high-performing firms to reduce their subsequent performance. I test this hypothesis, as well as several moderating effects, by examining how firms responded to a social responsibility rating that evaluated their prior philanthropic efforts. My findings suggest that firms recognized for their generosity were, under certain conditions, more likely to reduce their subsequent philanthropic contributions. I call this effect the paradox of recognizing responsibility. From a practical perspective, these results highlight the unintended consequences of social ratings and provide further insight for stakeholders interested in motivating improvements in corporate social performance.