A Behavioral Model of Responsible Sourcing in Supply Chains: The Role of Dual-Sourcing Bias

Abstract

Decision on what consumer reactions (support or boycott) to promote is important for nongovernmental organizations and policymakers looking to influence firms’ adoption of corporate social responsibility practices. We study how consumer reactions—paying more for certified products or boycotting in the event of responsibility violations—are effective in improving a firm’s uptake of responsibility practices in the sourcing domain. We first build a stylized model to study how consumer reaction affects a firm’s incentives toward responsible sourcing and find that only boycotting reactions by consumers reliably increases a firm’s sourcing from responsible suppliers. We then include behavioral aspects to our stylized model to derive a more nuanced understanding of how consumer reactions affect responsible sourcing. Through behavioral experiments, we first show that a supporting consumer reaction induces a dual-sourcing bias in firms’ sourcing decisions. We then develop a behavioral model of responsible sourcing, incorporating this dual-sourcing bias. Our analysis modifies the normative predictions of the stylized model by showing that a supporting reaction, irrespective of magnitude, always improves responsible sourcing if the boycotting reaction from the market is weak, and that promoting a boycotting reaction always improves responsible sourcing, irrespective of the product type. Our results lead us to a comprehensive and applicable insight for practice: in the supply chains of products with few brand substitutes, creating a supporting reaction in the market is the way to improve firms’ responsible sourcing, and in supply chains of products with many brand substitutes, promoting a boycotting reaction among consumers will lead to more responsible sourcing.