Partial privatization and the degree of corporate social responsibility of private investors

Abstract

A significant issue for study is what type of private investor governments should sell public firms to: those who care about corporate social responsibility (CSR) or those who are profit-maximizers. To analyze this issue we measure CSR concern through consumer surplus and consider a market in which a private and a public firm compete. We find that the decision taken by the government crucially depends on the social concern of the rival private firm. When that firm cares about CSR, selling part of the public firm to socially concerned private investors is no worse than selling to profit-maximizing investors. However, when the private firm maximizes profits the opposite result is obtained. In addition, from a social welfare viewpoint, when social concern is not high it is desirable for all private investors to engage in CSR. Otherwise, it is preferable for them not to care about society.