Incentives, performance and desirability of socially responsible firms in a Cournot oligopoly

This paper investigates how socially responsible behaviour influences firms' profits and social welfare when production entails an environmental externality. We study a Cournot oligopoly with pollution, with one CSR operating in the market. A CSR firm takes into account not only its profits but also internalises its own share of pollution and is sensitive to consumer surplus. With a large enough market, the CSR firm obtains higher profits than its profit-seeking competitors, and induces a higher level of social welfare. The results are confirmed when a socially optimal tax on pollution is adopted. Indeed, even if the environmental concern restrains the production of a CSR firm, the social concern expands it. The second effect more than offsets the first one in a large market, making the CSR production strategy be more aggressive compared to its competitors.