Corporate social responsibility
and information handling
”Just some thoughts”
Jens Christopher Andvig
Norwegian Institute of International Affairs
Background and aims for the
presentation
• Name: Jens Christopher
Andvig,
• Norwegian economist
published on corruption,
child labor (and
soldiering), organized
crime and history of
econometric approach to
macroeconomics
• Nothing on CSR or India
• Why informationhandling
and CSR? Background
• Leads towards corruption
that I have studied before
• Trivial? Corruption is
something not done when
CSR
• How should/is corruption
handled in CSR
administration?
• Corruption and CSR raise
normative issues: the
black and white
CSR: Friedman/Walras: A no-issue
• Friedman: CSR either theft (from owners) or
nothing at all.Def.: ”CSR is about sacrificing
profits in the social interest.”Benabou &Tirole
• Walras: if the state so wish decentralize
production so manager/owners maximize profits.
If the latter is different from zero, you may tax it.
• Welfare economics: If free competion, full
information, no external effects profit max leads
to welfare optimal states, and
• CSR = profit max. Let state/politics take care of
the ethics
Definitions of CSR
• 1) Friedman /Benabou & Tirole: Intentional sacrifice of
profit for social/public good
• 2) A set of joint owner –top manager preference
functions where utility of workers, customers and the
public in general receive considerable weight in addition
to enterprise net income. Altruistic motivated behavior in
general
• 3) A set of expenses that deliver goods and services of a
kind that is not traditionally related to profit max whatever
the motivation and consequence for profits. - Only
operational definition?
4) PR activities directed towards the general public,not
customers only
maximize profits in different
countries/states.same tax rate
• Case 1: no transfer of before-tax profit is possible. Same
as before
• Case 2: All profit may be aggregated and taxed at
headquarter. Then where is the CSR-headquarter to be
located? An unethical choice?
• Case 3: taxable profit may be freely reallocated across
countries. All have the same rate, but in country A
disappears most of the income in corruption while in B
goes all to public goods and services. If no CSR,
preference solution indeterminate, with: be taxed in B.
But what if A is very poor and B is rich?
• Note that so far we really don’t have CSR according to
the B&T definition. The profit is the same.
Profit max. Varying tax rates
• Profit max: low cost location of plant # low tax
payment location- CSR: Substitute some profit to
pay more tax?
• Companies with higher quasi-rent can afford it,
hence may apply CSR.
• Companies without quasi-rents may have to do
tax avoidance to survive.
• Mauritius tax avoidance possibility: unethical or
opens up for an optimum: highest possible
Indian investment/employment and tax income?
Profit max and tax regulation efforts
• Taxes based on income information supplied by
enterprise and monitored by public authorities
• CSR: more honest info. than possible to get
away with.
• Profit max: allocate tax payment towards
countries where monitoring is weaker clearly
unethical
• What then if combined with own supply of public
goods? – Competing ethical principles: lying to
some good.
E
Ethical
judgments: lying
t
h
i
Motivation
Action
c
a
l
uncondicially wrong or?
Situation
Consequence
Altruistically honest taxpayment –
efficient CSR?
• If anonymous, altruistic actions decrease
in frequency, donations, e-voting.
• Enterprise taxpayments are complex – few
except tax authorities may know, and
maybe not even them (several countries).
• If known, not generally so much
appreciated by the public.
• EITI an attempt to let published income
information be part of CSR.
CSR located in the information
department – selfdestruct?
• Overinvestment in visible CSR – green
investment in windmills rather than reisolation
• Anti-corruption efforts in the information-ethics
and not security department.
• Generally: Excessive publicity makes people
discount the value of CSR
• Value of CSR among the few versus the many?
• Other side of the ledger: reminding of injustice,
environmental impacts
BP – EXXON ”go public/ stay secret” Stag hunt game
EXXON
Stay secret
Go Public
Go Public
{ 2 , 2}
{-1,1}
{1 , - 1}
{ 0 , 0}
BP
Stay Secret
BP-EXXON ”go public/stay secret” PD game
EXXON
Stay Secret
Go Public
Go Public
{2,2}
{-1, 3}
BP
{ 3 , -1 }
Stay Secret
{1,1}
CSR and competition
• Shleifer(2004) ”Does competition destroy ethical
behavior?” ’Yes’, when combined with poverty, but
causes income to grow and ethics is a normal good so
’no’ in the long run.
• Hirschman (1982), ’No’, when competition is not too
fierce, then it improves ethics, ’yes’ when too fierce.
• Schwieren & Weichelsbaumer (2008)Experiment: 1)only
own performance counts, 2) Own performance
compared to others detemines rewards. Result: No
difference in cheating frquency, but low-performers cheat
more.
• Consequence for regulation?