The role of public information in corporate social responsibility

Many of the attributes that make a good 'socially responsible' are credence attributes thatcannot be learned by consumers either through search or experience. Consumers, then, use fortheir purchasing decisions 'noisy' information about these attributes obtained from potentiallycontradictory channels (media, advertisement, NGOs). In this paper we model such informationalframework and show the positive relationship between the accuracy of the information transmittedto consumers and corporate social responsibility (CSR). We also show that a firm may be temptedto add noise to the information channel (through lobbying of the media), which might reduce thesupply of the CSR attributes and even harm the firm itself (with lower profits). It might then beprofitable to the firm to commit ex-ante to not manipulate the information regarding the firm'sbusiness practices (e.g., with a partnership with an NGO). Finally, we extend our model to acompetition framework endogenizing the number of firms active in the CSR segment. We showboth that in more transparent markets a larger number of firms will be CSR, and that in a marketwith more intense competition, a higher degree of transparency is required in order to sustain agiven number of CSR firms