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Journal Articles Journal of Political Economy Year : 2022

Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare

Michele Fioretti

Abstract

Many firms claim that "social impact" influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures because consumers' willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfareenhancing tax with limited pass-through.
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Dates and versions

hal-03791920 , version 1 (29-09-2022)

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Attribution - NonCommercial - NoDerivatives

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Michele Fioretti. Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare. Journal of Political Economy, 2022, 130 (11), pp.58. ⟨10.1086/720459⟩. ⟨hal-03791920⟩
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