Coase-Sandor Working Paper Series in Law and Economics


Hajin KimFollow

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Working Paper

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Teaching people that corporations must exclusively maximize profits can reduce “win-wins”—what is both profitable and good for society. If everyone believes that corporations must maximize profits only, nobody will protest when corporate pursuits of profits harm society—the firms were fulfilling their duty and meeting investor and consumer expectations. But what if people instead believed that corporations should consider their social impacts, even sometimes at the expense of profits? Consumers, employees, and investors might be more willing to object to corporate harms by changing their purchasing, job choice, and investing behaviors or by petitioning corporate leaders for redress. Those objections would change firm incentives. And in response to those tangible incentives, even purely profit-maximizing firms would try to do more good and less harm because doing so would be more profitable

This paper develops and empirically tests this theory of stakeholder expectations and corporate prosociality. Two preregistered studies with nearly 1300 participants provide initial empirical support for the idea that stakeholder expectations (of exclusive profit maximization or of the possibility of corporate prosociality) affect their protest decisions. Amazon Mechanical Turk workers had the opportunity to sign a real Greenpeace petition against Amazon, the platform that runs Mechanical Turk. Those randomly assigned to learn an exclusive profit maximization norm were less likely to sign the petition than those randomly assigned to learn that firms can and should care about society. Exclusive profit maximization led participants to believe it less appropriate and effective for employees to push for social change, and that fewer firms would care and fewer others would protest. Expecting corporate prosociality instead could thus plausibly make it easier for firms to do well by doing good.

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