Bad Greenwashing, Good Greenwashing: Corporate Social Responsibility and Information Transparency

With the growing popularity of corporate social responsibility (CSR), critics point out that firms tend to focus on salient CSR activities while slacking off on the unobservable ones, using CSR as a marketing gimmick. Firms’ emphasis on observable aspects and negligence of the unobservable aspects are often labeled as greenwashing. This paper develops a game-theoretic model of CSR investment, in which consumers are socially minded, but they can observe only a subset of CSR initiatives. Two types of firms are considered: those that are driven solely by profit maximization and those that are socially responsible, motivated not only by profit, but also by a genuine concern for the social good. Our analysis…