Determining the Impact of Government Intervention on Firm Decisions for Sustainable Production

• Main Authors: Fernandez, Katherine Ann J., Go, Joshua Ryan C., Ng, Jean Nicole L., Redulla, Bianca Alanis Ysabel C., Alinsunurin, Jason, Lim, Dickson A., Sauler, Mariel Monica R.
• Format: text
• Published: Animo Repository 2021
• Subjects: Environmental CSR; corporate social responsibility; Game theory; CSR; Government intervention; Stackelberg duopoly; Social Policy; Social Welfare
• Online Access: https://animorepository.dlsu.edu.ph/res_aki/83; https://animorepository.dlsu.edu.ph/context/res_aki/article/1095/viewcontent/Determining_the_Impact_of_Government_Intervention_on_Firm_Decisions_for_Sustainable_Production.pdf
• Institution: De La Salle University

We use a game theoretic approach to assess how the government can influence firms’ corporate social responsibility (CSR) investment and production decisions to enhance social welfare, considering the negative externalities of unsustainable production and positive externalities from CSR investments. Using a Stackelberg duopoly as a base model and lump-sum tax as the government’s decision variable, we find that when the government chooses not to intervene, it results in greater environmental damage as firms will underinvest in CSR and overproduce in quantity to achieve profit maximization. As such, the model extends to the assumption that the government acts as a benevolent dictator to model how firms will act under a regulated environment to achieve the optimal outcome. Ultimately, we show that firms have to be placed under a regulated environment to prevent them from exploiting resources and damaging the environment, thereby negatively affecting societal welfare.