Corporate social responsibility: An experimental analysis

The objectives of this study is to determine how an activist reacts to a firm’s willingness to contribute to a public good. We interpret corporate social responsibility as an extensive form game between an activist and a firm in which an activist attempts to induce a firm to increase its contribution to a public good. The main pressure that an activist can put on a firm is the threat of a boycott with a probability of success. We analyze this dynamic in an experiment on human subjects featuring public good provision with random punishment. The experiment has three parts. In the first part, subjects are assigned a real effort task in which each receives the same number of points. The objective of the real effort task is to elicit a sense of having earned the number of points subjects receive in the real effort task. This causes subjects to have more engagement with the consecutive tasks. The second part is a voluntary contribution mechanism that allows groups of four to contribute to a public good. This is based on standard public goods games. Following this part, subjects are categorized as activists and firms, based on their contributions to the public good. Those that contribute more are activists and those that contribute less are firms. Then, the subjects are paired. In this third part, subjects play the extensive form game. The Nash equilibrium lies where the firm does not contribute more, and the activists accepts this. We expect to find that subjects will deviate from this Nash equilibrium. Moreover, we expect to find that the main driver of subject choices in the stage game, and therefore payoffs, is inequity aversion. The more the disparity in terms of contributions between the activist and the firm, the higher the probability that a dyad will end up in an inefficient equilibrium with punishment.