Can CSR-Based Self-Regulation Be a Substitute for Legal Regulation? Conclusions from Public Goods Experiments

Journal of Self-Regulation and Regulation, Volume 03 (2017)

19 Pages Posted: 5 Jun 2017 Last revised: 8 Jul 2017

Date Written: June 4, 2017

Abstract

This article discusses various arguments, which question the effectiveness of self-regulation as an instrument to implement societally preferred environmental and social standards. (1) Under the behavioral assumptions of the neoclassical theory voluntary self-regulation is not possible, if it reduces company profits. (2) New experimental evidence, on which this paper is focused, shows that effective self-regulation can only be expected if certain quasi-governmental institutions exist. (3) Private companies have not sufficient information concerning the social costs of external effects. (4) Companies financed by capital markets will face a reduction of their market value, if the management engages in costly self-regulation. This can cause a hostile take-over, which leads to an exchange of the management. (5) If a company's management is no longer committed to the profit interests of its owners, it can evade any control. Taken together, these results indicate that it is not plausible that effective self-regulation in areas such as environmental protection or social standards is actually feasible under market conditions. The evidence is much more in favor with the traditional approach that environmental or social standards should be implemented by general laws under the surveillance of an executive state body.

Keywords: Self-regulation, Corporate Social Responsibility, Experimental Economics, Economic Policy, External Effects

JEL Classification: H4, K2, L2, L21, L51, C92

Suggested Citation

Maurer, Rainer, Can CSR-Based Self-Regulation Be a Substitute for Legal Regulation? Conclusions from Public Goods Experiments (June 4, 2017). Journal of Self-Regulation and Regulation, Volume 03 (2017) , Available at SSRN: https://ssrn.com/abstract=2980505

Rainer Maurer (Contact Author)

Pforzheim University ( email )

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Pforzheim, D-75175
Germany
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HOME PAGE: http://www.rainer-maurer.com

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