On the private and social incentives to adopt environmentally and socially responsible practices in a monopoly industry

This paper studies the incentives to adopt Environmental Corporate Social Responsibility (ECSR) in a multiproduct monopoly. In our framework, products are horizontally differentiated, production is polluting and a time-consistent government levies a tax on emissions. The ECSR monopolist may invest in R&D activities to reduce polluting emissions, while emission-reducing innovation may spillover from one product to the other. We show that the monopolist has no incentive to engage in ECSR, unless a regulatory measure is introduced. By contrast, a time consistent tax induces the adoption of a ECSR statute. Under admissible parameter conditions, profits are concave and single-peaked in the ECSR intensity. Finally, ECSR monotonically increases social welfare, by raising consumer surplus and curbing environmental damage.