Transformations  in
Business & Economics

CORPORATE SOCIAL RESPONSIBILITY, NEGATIVE EXTERNALITY AND EXTERNALITY AND INVESTMENT IN POLLUTION CONTROL⁸
Junlong Chen, Bo Xu, Ruihan Zhang

ABSTRACT. This paper sets up a model for pollution control (PC) investment and examines the optimal PC investments in the presence and absence of Pigouvian tax (PT) through a two-stage sequential game. The paper also discusses the impacts of CSR and negative externality on PC investment and social welfare. The results show that, in the absence of PT, PC investment is negatively correlated with negative externality and positively with CSR. In the presence of PT, negative externality and CSR have uncertain impacts on PC investment and influence the other's relationship with PC investment. Whether the government levies PT, CSR, and negative externality have uncertain impacts on social welfare, and the influence mechanism varies with the value ranges of CSR and negative externality. Moreover, the influence mechanism is more complex in the presence of PT than in its absence. Comparatively, the levy of PT can promote social welfare, but not necessarily boost PC investment.

KEYWORDS:  corporate social responsibility, negative externality, investment in pollution control, duopoly, Pigouvian tax.

JEL classification:  L13, L51, H23.

⁸Acknowledgement:  This research is supported by the National Social Science Fund in the later stage of China (Grant number: 20FJYB066).