Managing social responsibility efforts with the consideration of violation probability

Abstract

Corporate social responsibility (CSR) has a strong impact on the external image of the enterprise. The violation of CSR not only harms the enterprise but also negatively affects other firms in the supply chain. This paper establishes a game-theoretical model to study the management of social responsibility efforts with considerations of violation probability. The upstream manufacturer and downstream retailer can reduce the violation probability by exerting CSR efforts. Specifically, we study the following four models, including both participants exerting efforts, only the manufacturer exerting effort, only the retailer exerting effort, and neither participant exerting effort. Our analysis shows that as the effort cost of the manufacturer increases, the retailer may increase or decrease his effort level under both participants exerting efforts, due to the complementary and substitution effects between the efforts of the manufacturer and retailer. We also find that compared with both participants exerting efforts, the retailer may increase or decrease his effort level under only the retailer exerting effort, and the effort level of the manufacturer may grow or shrink under only the manufacturer exerting effort. In addition, we study the decision matrix for the manufacturer and retailer, and find that in equilibrium the manufacturer always has incentives to exert CSR effort, while the retailer may prefer a free ride and sometimes chooses not to exert effort. Interestingly, we find that the total supply chain profit may not be the highest under both participants exerting efforts, but it is the lowest under neither participant exerting effort.