View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Economic SYNOPSES
short essays and reports on the economic issues of the day
2008 ■ Number 22

Strategic Social Responsibility
Rubén Hernández-Murillo

C

Siegel and Vitaliano found that firms selling experience and
orporate social responsibility (CSR) is a concept that
credence goods and services are more likely to engage in CSR
promotes expanded social stewardship by businesses and
than those selling search goods. The difference is explained by
organizations and has gained popularity in recent years.
consumers’ perception of a firm’s involvement in CSR (even when
CSR suggests that corporations embrace responsibilities toward
its product does not directly include an ethical component) as a
a broader group of stakeholders (customers, employees, and the
valuable signal, particularly when associated with upscale goods
community at large) in addition to their customary financial obliand services for which prices do not convey all the necessary
gations to shareholders. Social activists often pressure corporations
information about the firm’s reliability and its commitment to
to engage in CSR by integrating some ethical feature in their
quality and honesty. Among the firms listed in the “100 Best
product or undertaking some type of social investment. Firms
Corporate Citizens” ranking for 2007, only one-fourth produce
are also ranked in terms of their CSR.
search and nondurable experience goods; the remaining 75 perAlthough some economists are concerned about the viability
cent produce durable experience goods or experience or credence
of CSR in a competitive environment, recent studies suggest that
services (see chart).2 These findings suggest that engaging in CSR
engaging in CSR can be consistent with profit-maximization
activities
can be a rational and crucial profit-maximization decibehavior. These studies argue that CSR can be considered a form
sion
regarding
a firm’s differentiation strategy. ■
of strategic investment for building and maintaining the firm’s
1 Siegel, Donald S. and Vitaliano, Donald F. “An Empirical Analysis of the Strategic
reputation. Other benefits derived from CSR may include the
Use of Corporate Social Responsibility.” Journal of Economics and Management
ability to charge a premium for products or the ability to recruit
Strategy, Fall 2007, 16(3), pp. 773-92.
and retain certain types of workers. In fact, consumers’ shopping
2 This ranking by the Corporate Responsibility Office evaluates the social performpatterns suggest that some socially concerned individuals are willance of approximately 1,000 publicly held U.S. corporations (roughly the same
universe of firms analyzed by Siegel and Vitaliano) on several categories, including
ing to pay a price premium for goods that incorporate a social or
financial performance, accountability toward local communities, governance,
ethical component (e.g., hybrid automobiles or beauty products
fairness to employees, environmental responsibility, human rights, and product
not tested on animals) because they value these characteristics.
characteristics; the complete list for the “100 Best Corporate Citizens” is at
www.thecro.com/files/100BestGatefold.pdf.
Economists Donald Siegel and Donald Vitaliano
analyzed the role of CSR as a signaling device to convey
information about the firm’s product quality.1 Their study
100 Best Corporate Citizens, 2007
of a large sample of publicly traded firms classified the
Frequency
firms using North American Industry Classification System
50
codes into the following five categories: search goods (those
whose quality can be readily evaluated before purchase,
45
e.g., clothing, footwear, furniture); nondurable experience
40
goods (those whose quality is experienced over multiple
35
uses and frequent purchases, e.g., food, health and beauty
30
products); durable experience goods (those that must be
25
consumed before their true value can be determined, permit less learning from repeated purchases, and require a
20
longer period for the product’s characteristics to be fully
15
known, e.g., automobiles, appliances); and finally, experi10
ence services and credence services (those that often involve
5
strong information asymmetries between sellers and buy0
ers, who may find it difficult to assess the service’s value
Search
Nondurable
Durable
Experience
Credence
even over a long period, e.g., banking, financial counselGoods
Experience
Experience
Services
Services
Goods
Goods
ing, auto repairs, weight loss programs).
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org