Corporate Social Responsibility and Managerial Bonus Systems

This paper analyses the effects of managerial delegation on the equilibrium outcomes in a duopoly market in which firms adopt corporate social responsibility (CSR) behaviours (approximately measured, as usual, by their sensitivity to consumer surplus). In particular, the endogenous choice between the most common manager’s bonus schemes—i.e. sales delegation (D), “relative profits” (RP) and “pure CSR objective function” (PCSR)—is investigated making use of a standard game-theoretic approach. It is shown that the sub-game perfect Nash equilibrium is given by the common choice of the RP scheme, whereas the CSR firm’s objective function would be highest (lowest) under the PCSR (D) choice. Therefore, the well-known prisoner’s dilemma nature of the managerial delegation game holds also when firms adopt CSR behaviours. Overall, these findings shed new light on the issue of the managerial delegation in the recently increasing cases of socially concerned firms.