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.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics