The Corporate Social Responsibility Price Premium as an Enabler of Substantive CSR

Abstract

Research on corporate social responsibility (CSR) has investigated the determinants of firms’ choices to engage in substantive, as opposed to merely symbolic, CSR. However, scholars have yet to examine the economic incentives governing these choices. In particular, the literature offers little insight into how consumers’ willingness to pay a CSR-price premium affects the choice between symbolic and substantive CSR. To address this question, this paper proposes a formal model where substantive CSR reduces the negative socio-environmental externalities associated with firms’ products, while consumers vary in their ability to monitor these externalities, and in their preferences for CSR. The paper establishes conditions under which the CSR-price premium functions as an enabler of substantive CSR. It also examines how monitoring intensity, product differentiation, and competitors’ CSR engagement choices moderate this enabling effect. For example, when competitors engage in symbolic CSR, higher monitoring increases the enabling effect of the CSR-price premium if substantive CSR sufficiently reduces negative externalities, but decreases it otherwise. Product differentiation and competitors’ decisions to engage in substantive CSR have similarly nuanced roles. A further application of the model suggests that CSR communication costs may be instrumental in discouraging all forms of symbolic CSR, including greenwashing and social washing.