Certification of Corporate Social Responsibility Activities in Oligopolistic Markets

Abstract

We investigate the impact of alternative certifying institutions on firms' incentives to engage in costly Corporate Social Responsibility (CSR) activities as well as their relative market and societal implications. We find that the CSR certification standard is the lowest under a for-profit private certifier and the highest under a Non Governmental Organization (NGO), with the standard of a welfare maximizing public certifier lying in between. Yet, regarding industry output, this ranking is reversed. Certification of CSR activities is welfare enhancing for consumers and firms and thus should be encouraged. Finally, depending on whether certification takes place before or after firms' CSR activities, a public certifier and a NGO lead to different market and societal outcomes.Corporate Social Responsibility, Oligopoly, Vertical Differentiation, Certification