Corporate social responsibility: a theory of the firm revisited with environmental issues

The firm’s Corporate Social Responsibility (CSR) theory posits that, in strategic markets, social actions can lead to a prisoner’s dilemma. This paper develops a model with pollution externalities and environmental taxation to incentivize firms’ abatement activities through green R&D investments. When the firms’ objective function incorporates environmental issues (Environmental CSR, or ECSR), a wide spectrum of Nash equilibria emerges – ranging from Pareto-inefficient to Pareto-efficient (ECSR,ECSR) outcomes – depending on the degree of social concern and the level of horizontal product differentiation. The timing of the environmental policy, specifically whether the government can commit (time-inconsistent) or cannot commit (time-consistent), affects the endogenous market structure of the ECSR decision game. This represents a key difference compared to the standard CSR framework without abatement and taxation.