Do consumers gain or lose when managers become socially concerned?

Abstract

The Friedman Doctrine states, “an entity's greatest responsibility lies in the satisfaction of the shareholders.” This leads us to consider managerial firms’ corporate social responsibility (CSR) activities delegated by profit-maximizing owners. Our research follows the Ferstman-Judd-Skilvas framework to examine if profit-maximizing owners could ask managers to be socially rather than privately concerned and its impacts on social welfare, contributing to the literature of CSR by presenting the following results. First, CSR delegation is a dominant strategy. Second, CSR delegation reduces the industry output level. We further show that consumers’ surplus and social welfare decrease in the number of managerial firms adopting CSR delegation. The above results imply that socially concerned managers with profit-maximizing owners are socially undesirable in a market with output delegation.