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DLSU-AKI Working Paper Series 2021-11-078: A Game Theoretic Study on CSR and Government Intervention for Sustainable Production

We use a game theoretic approach to assess how the government can influence firms’ CSR investment and production decisions to enhance social welfare, considering the negative externalities brought by unsustainable production and positive externalities brought by CSR investments. Using a Stackelberg duopoly as a base model and lump-sum tax as the government’s decision variable, we find that when the government chooses not to intervene, it results in greater environmental damage as firms will underinvest in CSR and overproduce in quantity to achieve profit maximization. As such, the model extends to the assumption that the government acts as a benevolent dictator to model how firms will act under a regulated environment to achieve the Pareto optimal outcome. Ultimately, we show that firms have to be placed under a regulated environment to prevent them from exploiting resources and damaging the environment, thereby negatively affecting societal welfare.

DLSU - Angelo King Institute for Economic and Business Studies
Authors Keywords
Fernandez, Katherine Ann, J.; Go, Joshua Ryan, C.; Ng, Jean Nicole, L.; Redulla, Bianca Alanis Ysabel, C.; Alinsunurin, Jason, P.; Lim, Dickson, A.; Sauler, Mariel Monica, R. ; CSR; Environmental CSR; Corporate Social Responsibility; Game theory; Government intervention; Stackelberg duopoly;
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Published in 2021 and available in the De La Salle University - Angelo King Institute for Economic and Business Studies (Room 223, St. La Salle Hall, 2401 Taft Avenue, Manila 0922 or Downloaded 2 times since November 25, 2021
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