Profitable environmental corporate social responsibility under managers’ relative profit performance competition

Abstract

When managers face relative profit performance competition, we formulate a green managerial delegation contract where the owners impose profit-oriented environmental corporate social responsibility (ECSR) on their managers. We show that the owner adopts ECSR as a commitment device to reduce outputs under quantity competition if the degree of relative profit performance competition is sufficiently high, which can increase not only industry profits but also environmental quality. We also examine an endogenous choice of ECSR and find that the profitable level of ECSR in the asymmetric ECSR case is higher than that in the symmetric ECSR case while both firms undertake ECSR in equilibrium if the severity of competition is sufficiently high.