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Central European Management Journal

Show issue
Year 2019 
Volume 27 
Issue 4

“Green” Managerial Delegation and Environmental Corporate Social Responsibility in Different Market Structures

Domenico Buccella
Kozminski University

Michał Wojna
Kozminski University

2019 27 (4) Central European Management Journal

DOI 10.7206/cemj.2658-0845.7

Abstract

Purpose: Assuming a duopoly industry with pollution producing processes, the aim of this work
is to study the firms’ choice to engage in Environmental Corporate Social Responsibility (ECSR)
by means of “green” managerial delegation, i.e. hiring managers with preferences for environ mental
concerns to whom owners delegate both sales and decisions to adopt green technology.

Methodology: Depending on the firms’ strategic choices, a two/three-stage game takes place solved
by the backward induction method to obtain sub-game perfect Nash equilibria.

Results: When the market structure is a Cournot duopoly, and the environmental sensitivity of
“green” managers is extremely low, then the engagement in ECSR is the firms’ dominant strategy,
regardless of the efficiency level of the available abatement technology. Nonetheless, firms are cast
into a prisoner’s dilemma. On the other hand, if “green” managers have low-intermediate to intermediate
environmental sensitivity, then either no ECSR, multiple symmetric equilibria, or ECSR
engagement can emerge as a result in equilibrium. Finally, if managers’ environmental sensitivity
is adequately high, then firms do not engage in ECSR. When a market entry game is considered
with the Stackelberg competition in which the incumbent adopts ECSR while the entrant does not,
socially responsible behaviors cause the market to be more contestable. However, the incumbent’s
owners can use ECSR to secure a dominant position in the market, provided that they hire “green”
managers with adequate environmental concerns.
Implications: In the case of entry, non-trivial policy implications arise. Due to increased competition,
the welfare of consumers improves (lower prices for the goods). However, the entry of a polluting
firm increases emissions. Higher emissions damage consumers and lower the overall social welfare
of an environmentally concerned government. Thus, a complete welfare analysis is required prior
to the design of a government’s regulatory intervention.

Originality/Value: This paper is the first that introduces the figure of the “green” manager who
shows, in its utility function, an environmental concern.

References

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  50. Antweiler, W. (2003). How effective is green regulatory threat? American Economic Review, 93(2), 436–441, https://doi.org/10.1257/000282803321947489. [Google Scholar]
  51. Dixit, A. (1980). The role of investment in entry-deterrence. The Economic Journal, 90(357), 95–106, https://doi.org/10.2307/2231658. [Google Scholar]
  52. Fanti, L. and Meccheri, N. (2013). Managerial Delegation under Alternative Unionization Structures. Labour, 27(1), 38–57, https://doi.org/10.1111/labr.12005. [Google Scholar]
  53. Fershtman, C. and Judd, K. (1987). Equilibrium incentives in oligopoly. American Economic Review, 77, 927–940. [Google Scholar]
  54. Gal-Or, E. (1985). First mover and second mover advantages. International Economic Review, 26(3), 649–653, https://doi.org/10.2307/2526710. [Google Scholar]
  55. Graf, C. and Wirl, F. (2014). Corporate social responsibility: a strategic and profitable response to entry? Journal of Business Economics, 84(7), 917–927, https://doi.org/10.1007/s11573-014-0739-z. [Google Scholar]
  56. Hirose, K., Lee, S.H. and Matsumura, T. (2017). Environmental corporate social responsibility: A note on the first-mover advantage under price competition. Economics Bulletin, 37(1), 214–221. [Google Scholar]
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  58. Jansen, T., van Lier, A. and van Witteloostuijn, A. (2009). On the impact of managerial bonus systems on firm profit and market competition: the cases of pure profit, sales, market share and relative profits compared. Managerial and Decision Economics, 30, 141–153, https://doi.org/10.1002/mde.1437. [Google Scholar]
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  65. Riillo, C.A.F. (2017). Beyond the question “Does it pay to be green?”: How much green? And when? Journal of Cleaner Production, 141, 626–640, https://doi.org/10.1016/j.jclepro.2016.09.039 [Google Scholar]
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  69. Spence, A.M. (1977). Entry, capacity, investment and oligopolistic pricing. The Bell Journal of Economics, 8(2), 534–544, https://doi.org/10.2307/3003302. [Google Scholar]
  70. The Economist (2019). Big business is beginning to accept broader social responsibility, https://www.economist.com/briefing/2019/08/22/big-business-is-beginning-to-accept-broader- social-responsibilities. [Google Scholar]
  71. Vickers, J. (1985). Delegation and the theory of the firm. Economic Journal, 95, 138–147, https://doi.org/10.2307/2232877 [Google Scholar]
  72. Wright, C., Nyberg, D. and Grant, D. (2012). “Hippies on the third floor”: Climate change, narrative identity and the micro-politics of corporate environmentalism. Organization Studies, 33(11), 1451–1475, https://doi.org/10.1177/0170840612463316. [Google Scholar]
  73. Asproudis, E. and Gil-Moltó, M.J. (2015). Green Trade Unions: Structure, Wages and Environmental Technology. Environmental and Resource Economics, 60(2), 165–189, https://doi.org/10.1007/s10640-014-9768-x. [Google Scholar]
  74. Antweiler, W. (2003). How effective is green regulatory threat? American Economic Review, 93(2), 436–441, https://doi.org/10.1257/000282803321947489. [Google Scholar]
  75. Dixit, A. (1980). The role of investment in entry-deterrence. The Economic Journal, 90(357), 95–106, https://doi.org/10.2307/2231658. [Google Scholar]
  76. Fanti, L. and Meccheri, N. (2013). Managerial Delegation under Alternative Unionization Structures. Labour, 27(1), 38–57, https://doi.org/10.1111/labr.12005. [Google Scholar]
  77. Fershtman, C. and Judd, K. (1987). Equilibrium incentives in oligopoly. American Economic Review, 77, 927–940. [Google Scholar]
  78. Gal-Or, E. (1985). First mover and second mover advantages. International Economic Review, 26(3), 649–653, https://doi.org/10.2307/2526710. [Google Scholar]
  79. Graf, C. and Wirl, F. (2014). Corporate social responsibility: a strategic and profitable response to entry? Journal of Business Economics, 84(7), 917–927, https://doi.org/10.1007/s11573-014-0739-z. [Google Scholar]
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  83. Lee, S.H. and Park, C.H. (2019). Eco-firms and the sequential adoption of environmental corporate social responsibility in the managerial delegation. The BE Journal of Theoretical Economics, 19(1), 1–9, http://doi.org/10.1515/bejte-2017-0043. [Google Scholar]
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  85. McAfee, R.P., Mialon, H.M. and Williams M.A. (2003). Economic and Antitrust Barriers to Entry. Mimeo, http://vita.mcafee.cc/PDF/Barriers2Entry.pdf [Google Scholar]
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  89. Riillo, C.A.F. (2017). Beyond the question “Does it pay to be green?”: How much green? And when? Journal of Cleaner Production, 141, 626–640, https://doi.org/10.1016/j.jclepro.2016.09.039 [Google Scholar]
  90. Salop, S.C. (1979). Strategic entry deterrence. The American Economic Review, 69(2), 335–338. [Google Scholar]
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  93. Spence, A.M. (1977). Entry, capacity, investment and oligopolistic pricing. The Bell Journal of Economics, 8(2), 534–544, https://doi.org/10.2307/3003302. [Google Scholar]
  94. The Economist (2019). Big business is beginning to accept broader social responsibility, https://www.economist.com/briefing/2019/08/22/big-business-is-beginning-to-accept-broader- social-responsibilities. [Google Scholar]
  95. Vickers, J. (1985). Delegation and the theory of the firm. Economic Journal, 95, 138–147, https://doi.org/10.2307/2232877 [Google Scholar]
  96. Wright, C., Nyberg, D. and Grant, D. (2012). “Hippies on the third floor”: Climate change, narrative identity and the micro-politics of corporate environmentalism. Organization Studies, 33(11), 1451–1475, https://doi.org/10.1177/0170840612463316. [Google Scholar]
  97. Asproudis, E. and Gil-Moltó, M.J. (2015). Green Trade Unions: Structure, Wages and Environmental Technology. Environmental and Resource Economics, 60(2), 165–189, https://doi.org/10.1007/s10640-014-9768-x. [Google Scholar]
  98. Antweiler, W. (2003). How effective is green regulatory threat? American Economic Review, 93(2), 436–441, https://doi.org/10.1257/000282803321947489. [Google Scholar]
  99. Dixit, A. (1980). The role of investment in entry-deterrence. The Economic Journal, 90(357), 95–106, https://doi.org/10.2307/2231658. [Google Scholar]
  100. Fanti, L. and Meccheri, N. (2013). Managerial Delegation under Alternative Unionization Structures. Labour, 27(1), 38–57, https://doi.org/10.1111/labr.12005. [Google Scholar]
  101. Fershtman, C. and Judd, K. (1987). Equilibrium incentives in oligopoly. American Economic Review, 77, 927–940. [Google Scholar]
  102. Gal-Or, E. (1985). First mover and second mover advantages. International Economic Review, 26(3), 649–653, https://doi.org/10.2307/2526710. [Google Scholar]
  103. Graf, C. and Wirl, F. (2014). Corporate social responsibility: a strategic and profitable response to entry? Journal of Business Economics, 84(7), 917–927, https://doi.org/10.1007/s11573-014-0739-z. [Google Scholar]
  104. Hirose, K., Lee, S.H. and Matsumura, T. (2017). Environmental corporate social responsibility: A note on the first-mover advantage under price competition. Economics Bulletin, 37(1), 214–221. [Google Scholar]
  105. Jansen, T., van Lier, A. and van Witteloostuijn, A. (2007). A note on strategic delegation: the market share case. International Journal of Industrial Organization, 25, 531–539, https://doi.org/10.1016/j.ijindorg.2006.04.017. [Google Scholar]
  106. Jansen, T., van Lier, A. and van Witteloostuijn, A. (2009). On the impact of managerial bonus systems on firm profit and market competition: the cases of pure profit, sales, market share and relative profits compared. Managerial and Decision Economics, 30, 141–153, https://doi.org/10.1002/mde.1437. [Google Scholar]
  107. Lee, S.H. and Park, C.H. (2019). Eco-firms and the sequential adoption of environmental corporate social responsibility in the managerial delegation. The BE Journal of Theoretical Economics, 19(1), 1–9, http://doi.org/10.1515/bejte-2017-0043. [Google Scholar]
  108. Maxwell, J.W., Lyon, T.P. and Hackett, S.C. (2000). Self-regulation and social welfare: The political economy of corporate environmentalism. Journal of Law and Economics, 43(2), 583–617, https://doi.org/10.1086/467466. [Google Scholar]
  109. McAfee, R.P., Mialon, H.M. and Williams M.A. (2003). Economic and Antitrust Barriers to Entry. Mimeo, http://vita.mcafee.cc/PDF/Barriers2Entry.pdf [Google Scholar]
  110. McAfee, R.P., Mialon, H.M. and Williams M.A. (2004). What is a barrier to entry? American Economic Review, 94(2), 461–465, https://doi.org/10.1257/0002828041302235. [Google Scholar]
  111. Milgrom, P. and Roberts, J. (1982). Predation, reputation, and entry deterrence. Journal of Economic Theory, 27(2), 280–312, https://doi.org/10.1016/0022-0531(82)90031-X [Google Scholar]
  112. Poyago-Theotoky, J. and Yong, S.K. (2019). Managerial Delegation Contracts, “Green” R&D and Emissions Taxation. The BE Journal of Theoretical Economics, 19(2), 1–19, https://doi.org/10.1515/bejte-2017-0128. [Google Scholar]
  113. Riillo, C.A.F. (2017). Beyond the question “Does it pay to be green?”: How much green? And when? Journal of Cleaner Production, 141, 626–640, https://doi.org/10.1016/j.jclepro.2016.09.039 [Google Scholar]
  114. Salop, S.C. (1979). Strategic entry deterrence. The American Economic Review, 69(2), 335–338. [Google Scholar]
  115. Shy, O. (1995). Industrial Organization: Theory and Application. Cambridge, MA: MIT Press. [Google Scholar]
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Buccella, D. , & Wojna, M. . (2019). “Green” Managerial Delegation and Environmental Corporate Social Responsibility in Different Market Structures. Central European Management Journal, 27(4), 2-22. https://doi.org/10.7206/cemj.2658-0845.7 (Original work published 2019)

MLA style

Buccella, D. , and M. Wojna. ““Green” Managerial Delegation And Environmental Corporate Social Responsibility In Different Market Structures”. 2019. Central European Management Journal, vol. 27, no. 4, 2019, pp. 2-22.

Chicago style

Buccella, Domenico , and Michał Wojna. ““Green” Managerial Delegation And Environmental Corporate Social Responsibility In Different Market Structures”. Central European Management Journal, Central European Management Journal, 27, no. 4 (2019): 2-22. doi:10.7206/cemj.2658-0845.7.