Social responsibility disclosure format in a supply chain

Abstract

With a growing emphasis on corporate social responsibility (SR), companies are increasingly engaging in SR disclosure activities to establish transparency and enhance consumer confidence in the SR efforts of their supply chains. In this study, we introduce a game-theoretic model that examines the dynamic interplay of SR investment and disclosure within a supply chain. In our model, the supplier decides the SR investment effort aimed at mitigating the product’s negative social impact, while the retailer can disclose the supplier’s investment effort to promote SR transparency. Two disclosure formats are considered: mandatory disclosure, where the retailer commits to disclosing the supplier’s social impact before any evaluations, and strategic disclosure, where the retailer makes the disclosure decision after evaluating the supplier’s effort. We investigate the implications of disclosure formats on investment effort, chain members’ profits, and consumer surplus. Our analysis surprisingly shows that strategic disclosure can yield a higher investment effort. We further demonstrate that (i) the retailer may voluntarily choose mandatory format even without regulations, (ii) mandatory format may decrease consumer surplus, (iii) mandatory format will never benefit the monopolistic supplier, and (iv) only strategic format can serve all parties’ interests simultaneously. These findings provide insights for the design of policies that promote SR behaviors and serve different stakeholders’ interests.