Abstract
The stakeholder (or responsible) firm maximizes the (weighted or un-weighted) sum of the surpluses of its customers and suppliers (includ-ing workers). Although this objective is hard to empirically measure, it can be pursued by simple management rules that rely on constrained profit maximization. Unconstrained profit maximization gives a competitive edge to ordinary firms, but stakeholder firms are better for social welfare and internalize several important effects of their activities on society. Long-term entry decisions should rely on profit modified by Pigouvian pricing of externalities, and this result provides a novel justification for the polluter-pays principle.
Original language | English (US) |
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Pages (from-to) | 2556-2594 |
Number of pages | 39 |
Journal | Journal of Political Economy |
Volume | 131 |
Issue number | 9 |
DOIs | |
State | Published - Sep 1 2023 |
Externally published | Yes |
All Science Journal Classification (ASJC) codes
- Economics and Econometrics