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

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.