Thursday, May 09, 2019

Nice Little Business You Have Here

(Image from 123RF.com)
Consumers value lower prices more than they do "corporate social responsibility (CSR)" policies--for example, green initiatives or workplace safety. So why do companies sometimes voluntarily restrict their actions more than the law requires? According to a Stanford study [bold added]
Firms may exceed regulation in order to reduce support for stricter regulations among key stakeholders, thereby forestalling future implementation of these regulations.
Another finding--breadth is more important than depth:
We found that self-regulation can be an effective corporate strategy, but the breath [sic] of self-regulation (the number of companies participating) mattered more than depth (the extent of self-regulation). In some simulations we conducted, we find that in the absence of self-regulation, pro-regulatory forces dominate in 68% of cases. If companies implement broad and deep regulations, this number drops to only 4%. However, companies can get it to as low as 16% by implementing broad but shallow regulations. In contrast, deep and shallow regulations only slightly reduce the chance of pro-regulatory domination.
Poll responders are displaying common sense; for example, it's better for everyone to cut their energy use by 10% than for a few large users to switch 100% to alternative energy.

It's also clear that companies are strongly incentivized to adopt CSR policies not because of innate altruism but because of the unspoken threat of regulation, i.e., "nice little business you have here, it would be a shame if anything happened to it."

Few approve of extra-legal coercion, especially if it's done to them, but it's better than imposing strict laws that nearly always have unintended consequences.

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