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.

The Constitution of the Nonprofit Enterprise: Ideals, Conformism and Reciprocity

We provide an account of the non profit enterprise based on the motivations of the agents involved. Our main idea is that these are ex -post motivated by both self-interest and a conditional willingness to conform to their ex ante accepted constitutional ideology, which are weighed up in a comprehensive utility function. Ideology is shaped as the result of a hypothetical ‘social' contract between the relevant figures participating in the venture, in particular an entrepreneur, a worker, and a consumer who acts as a dummy beneficiary in the ex-post stage. It can thus be defined as a normative principle of fairness that boils down to a distributive social welfare function defined over the outcomes of a game, which permits to order them according to their conformity to the constitutional ideology. For conformist preferences depend upon expectations of reciprocal conformity to a normative principle, defined on social states described in as much they conform to an ideal, then the agents' model of choice asks for the adoption of the psychological games approach, where payoff functions range over not only the players' strategies but also their beliefs. If the conformist prompt to action is sufficiently strong then the outcome in which both the active agents perform an action improving the quality of the good with respect to the free market standard, thus maximising the surplus of the consumers, results in a psychological Nash equilibrium of the game. We associate this outcome, and the corresponding norm of behaviour, with the constitution of the non profit enterprise. We also show that the structure of the interaction is a coordination game, thus calling for the necessity of devices such as codes of ethics to solve the coordination problem. Keywords: Nonprofit, non-self-interested motivations, conformism, reciprocity, ideology.

A theoretical analysis of the relationship between social capital and corporate social responsibility: concepts and definitions

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 fosters socio-economic development by generating social inclusion and social networks based on trust and trustworthiness. Following the literature on SC that stresses its multidimensional character, both a cognitive and a structural idea of SC are considered. 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, a contractarian approach is adopted and CSR is considered as an extended model of corporate governance, based on the fiduciary duties owed to all the firm’s stakeholders. Among stakeholders, a original distinction between “strong” and “weak” stakeholders is introduced. The key element that allows to distinguish between strong and weak stakeholders concerns the consequences that the break in the relationship with the firm produces both on the stakeholder and on the firm. 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. 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. Considering the notions of cognitive and structural SC, a contractarian approach to CSR and the distinction between weak and strong stakeholders, the paper shows 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.Social capital, Corporate Social Responsibility, Social network, Ideal utility, Cooperation, Trust.

A Theoretical Analysis of the Relationship between Social Capital and Corporate Social Responsibility: Concepts and Definitions

Trust, trustworthiness and ethical norms of reciprocity and cooperation have been receiving more and more attention in economic analysis. In particular, two concepts have been widely used in order to study the socio-economic effects of these factors: the concept of social capital (hereafter also SC) and of corporate social responsibility (hereafter also CSR). Even though SC and CSR seem to be linked by many common elements related to the quality and quantity of social relations between agents, their relationship has not been deeply investigated yet. This paper is aimed at shedding light on some aspects of this relationship, in particular, by investigating the idea of a virtuous circle, between the level of SC and the implementation of CSR practices, that fosters socio-economic development by generating social inclusion and social networks based on trust and trustworthiness. 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. Considering the notions of cognitive and structural SC and a contractarian approach to CSR, 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.social capital, social norms, reputation, CSR, reciprocity, network, trust

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.

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