R&D Organization and Corporate Social Responsibility Specialization

ABSTRACT

In this paper, we examine whether the scope of corporate social responsibility (CSR) should be broad or narrow. A broad scope covers both production and R&D investment decisions, while a narrow scope applies only to production decisions. We show that both firms' choices and the government's preferences depend on the level of CSR concern and on the way firms organize their R&D activities. When firms do not cooperate in R&D investment, they choose a broad CSR scope, which is consistent with the government's preference. If firms cooperate through a research joint venture (RJV) in which they fully share their technological knowledge, they adopt a narrow CSR scope when their level of social concern is sufficiently high; otherwise, they choose a broad scope. Moreover, when the level of social concern is high, the government has an incentive to discourage the formation of an RJV, as it prefers firms not to cooperate and to adopt a broad CSR scope. However, when the level of social concern is intermediate, encouraging an RJV may lead firms to adopt a narrow CSR scope, which yields higher welfare than the alternative equilibrium under noncooperation.