Corporate social responsibility and information handling

1. Corporate social responsibility and information handling ”Just some thoughts” Jens Christopher Andvig Norwegian Institute of International Affairs

2. 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 Background and aims for the presentation

3. 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 CSR: Friedman/Walras: A no-issue

4. 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

5. 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.

6. 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?

7. 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.

8. Ethical Ethical judgments: lying uncondicially wrong or? Consequence Situation Motivation Action

9. 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.

10. 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

11. BP – EXXON ”go public/ stay secret” Stag hunt game

12. BP-EXXON ”go public/stay secret” PD game

13. 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?