The efficiency of the non-profit enterprise: constitutional ideology, conformist preferences and reputation

According to one thesis the non profit enterprise (in short NPE) is able to attract ideological entrepreneurs and workers (Rose-Ackerman 1996). In fact I prove that without the ideological element, a simple game between the entrepreneur, worker and beneficiary is condemned to an opportunistic equilibrium, beneficial to the internal members of the organization but detrimental to the beneficiary. Thus the NPE does not better than its for profit counterpart. In my model ideologues, both entrepreneurs and workers, share a principle of justice seen as the constitutional ideology of the NPE, agreed upon in an hypothetical ex ante bargaining game. The constitutional principle provides an independent source of motivation (a source of utility) of the players, in so far as they believe in the reciprocity of conformity to the ideology by all the participants. I call this conformity-based utility “ideological”, and I see it as the representation of a preference for expected conformity to the given constitutional principle. The philosophical underpinnings of this reform of the players' utility functions in worked out by distinguishing two concepts of preferences of the Self: consequentialist preferences and conformist preferences. The latter are preferences for those actions that are part of states of affairs described in terms of interdependent actions conforming to an abstract norm or principle, which become effective once the preferences' holder does expect that the other players do they part in that state of affairs and they do expect that himself do his part in the same state of affairs. What result is that a player's ideological utility depends on the expectation of deontological modes of behaviour followed by all the participants, himself included. On this basis it is possible to overcome personal incentives to embrace opportunistic behaviour, so that the proper Non-profit Enterprise emerges. It is proved that in the “social enterprise game” amongst the member of the organisation there exists an organisational equilibrium minimising transaction costs to the beneficiaries. At last, this equilibrium rests on the emergence of an expectations system of reciprocal conformity to the constitutional ideology. As the existence - not even the selection – of the internal organizational equilibrium rests heavily on the existence of the appropriate system of reciprocal expectation, the problem of how we can justify the emergence of the appropriate system of beliefs must be underlined. Here is where the explicit moral codes of the NPE enters the scene. I see the code of ethics as the building block for deriving a reputation equilibrium between the NPE as a whole and its external stakeholders within a repeated game, whose stage-game is the typical game of trust played under incomplete knowledge and unforeseen contingencies. At last the conformist-motivation model and the reputation model under unforeseen contingencies are shown to play together in a mutually supporting explanation of the efficiency of the NPE.

CSR as Contractarian Model of Multi-Stakeholder Corporate Governance and the Game-Theory of its Implementation

Trento University Economics working paper series. Corporate Social Responsibility (CSR) is here defined as a multi-stakeholder model of corporate governance and fiduciary duties naturally emerging from a critical assessment of the incomplete contracts view of the firm based on concepts like as authority and residual rights of control. As far as the normative point of view is concerned, multi-stakeholder fiduciary duties are deduced from a theory of the firm's stakeholders Social Contract. This provide for a clear cut and calculable objective function, a criterion for governance and strategic management no less able to set a bottom-line to the firm management than the profit maximization principle. The theory of co-operative bargaining games, and the Nash bargaining solution in particular, provides the key concepts. By the way this also answers some criticisms raised by Michael Jensen (2001) against the notion of stakeholders value. As far as implementation of the normative model is concerned, four roles of voluntary but explicit CSR norms or social standard are presented in terms of a non-cooperative game theory of implementation. It is shown that they allow the description of strategies and equilibria, even if multiple, in a game played under unforeseen contingencies. Secondly, a CSR norm permits the ex ante selection of the equilibrium point that meets the requirements of an impartial choice. An explicit agreement on a contractarian norm is moreover a way to introduce psychological conformist equilibria, and quite surprisingly to derive the significant result that mixed strategy equilibria are absent in a psychological repeated Trust Game. Lastly, a cognitive and predictive role is played by an agreed CSR norm as the appropriate starting point for an equilibrium selection mechanism that, from a state of predictive uncertainty about possible equilibria, generates a state of mutually consistent expectations consistent with the prediction that all players will converge on the psychological equilibrium fully conforming with the norm as the effective solution of the game

Does virtuous circle between social capital and CSR exist? A “network of games” model and some empirical evidence

Social capital and corporate social responsibility (CSR) have received increasing attention in research on the role that elements such as trust, trustworthiness and social norms of reciprocity and cooperation may have in promoting socio-economic development. Although social capital and CSR seem to have features in common, their relationship has not yet been analysed in depth. This paper investigates the idea of a virtuous circle between the level of social capital and the implementation of CSR practices that fosters the creation of cooperative networks between the firm and all its stakeholders. By using both a theoretical approach developed by considering tools of network analysis and psychological game theory and an empirical approach based on original evidence from three case studies, this study shows the role that cognitive social capital (understood as a disposition to conform with ethical principles of cooperation) and the adoption of CSR practices may have in promoting the emergence of sustainable networks of relations between the firm and all its stakeholders (structural social capital).Social capital, Corporate Social Responsibility, Social norms, Network, Cooperation, Trust

Inspection games with long-run inspectors

A single, long-run policeman faces a large population of myopic would- be criminals. This paper shows that this interaction has counterintuitive comparative static properties. A forward-looking inspector might tolerate more law violations than a short-sighted one.

Modeling Cognitive Social Capital and Corporate Social Responsibility (CSR) as Preconditions for Sustainable Networks of Relations

The paper studies the relationship between social capital (SC) and Corporate Social Responsibility (CSR) by investigating the idea of a virtuous circle between the level of SC and the implementation of CSR practices that favours the creation of cooperative networks between the firm and all its stakeholders by promoting the spread of social norms of trust, trustworthiness and cooperation. Following the literature on SC that stresses its multidimensional character (e.g. Paldam 2000), we consider two dimensions of this notion. Starting from the distinction introduced by Uphoff (1999), we take into account a cognitive and a structural idea of SC. The first one essentially refers to the dispositional characters of agents that affect their propensity to behave in different ways. The latter refers to social networks connecting agents.With regard to the concept of CSR, we adopt a contractarian approach and consider CSR as an extended model of corporate governance, based on the fiduciary duties owed to all the firm's stakeholders. Among stakeholders, we distinguish between strong and weak stakeholders. Both these two categories have made specific investments in the firm. However, strong stakeholders are precious for the firm because they bring in strategic assets. They are, for example, skilled workers or institutional investors. On the contrary, weak stakeholders do not bring strategic assets into the firm and firms have material incentives at defecting in the relationship with them. They are, for example, unskilled workers. By using the tools of psychological game theory, the paper shows the role of cognitive social capital and the adoption of CSR practices in promoting the emergence of social norms of trust, trustworthiness and cooperation which favour the creation of cooperative networks between the firm and all its stakeholders (structural social capital). In particular, we show that: a) the level of cognitive SC plays a key role in inducing the firm to adopt and observe CSR practices that respect all the stakeholders; b) the decision of adopting formal instruments of CSR contributes to create cognitive SC that is endogenously determined in the model; c) the level of cognitive SC and the decision of adopting CSR practices creates structural SC in terms of a long term relationship between the firm and the weak and strong stakeholders.

Nonparametric and semiparametric evidence on the long-run effects of inflation on growth

Two major findings of the empirical literature on the connec tion between inflation and output growth is that their relationship is non linear and that there exists a threshold inflation level be low which inflation has a positive impact on growth and above which inflation has a negative impact on growth. In this paper we adopt both a nonparametric estimator and a semiparametric IV one to show that the first finding holds true even dropping the specification assumptions typical of parametric models. We also show that a threshold level does exist and it is around 12% for developed countries. Below this level inflation does not appear to have any substantial effect on growth.Inflation, Growth

Re-reading Jevons's Principles of Science - Induction Redux

In this paper I try to substantiate the thesis that Jevons may have been too harsh on the vices of induction and generously optimistic about the virtues of deduction, as discussed, primarily, in his magnum opus, The Principles of Science [6]. With this aim in mind the paper attempts to suggest (modern), recursion theoretic, theoretical technologies that could reduce and, under conditions that I claim would be acceptable to Jevons, even eliminate the inductive indeterminacies that he had emphasised.Jevons, Inductiion, Inductive Inference, Bayes's Rule