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About the event:
In classical economic theory, firms seek to maximize profits given technological constraints and regulations. Profit maximization implies firms ignore unpriced externalities, positive or negative. The accumulation externalities, most notably the amount of carbon that has been released into the atmosphere, has resulted in political and social pressure on firms to expand their objectives to environmental, social, and good governance concerns. Inclusion of these other concerns may be good public relations, stem off regulatory action, and maintain and lure top talent, and, thus, can correlate with profits.
Substantial academic literature and coverage in the popular press on purpose driven organizations. A growing number of organizations certify as B corps and eschew profit maximization as their primary goal. To certify as a B corp, must achieve a score above eighty on assessments of their impacts on workers, communities, the environment, suppliers, and customers. While for profit firms do not seek B corp certification, many trumpet their efforts and progress on these other dimensions.
These efforts can be directed at any number of social or environmental causes and concerns. The United Nations seventeen Sustainable Development Goals that include clean air and water, child labor, gender equality, and infrastructure. These seventeen goals are further decomposed into two hundred and thirty unique measurable targets. We cannot expect organizations to balance all of these concerns when making decisions. Instead, organizations will direct their efforts to a subset of targets or goals.
In this paper, we construct a model that allows us to analyze the implications of allowing firms to choose how they weigh various environmental, social and good governance concerns. In our model, organizations maximize profits while also place weights across a set of normative dimensions. Where organizations expend their efforts depends on vector of weights that they assign to different dimensions. The more weight a firm places on a dimension, say clean air, the more relative effort they take on that dimension. Global progress across all of the dimensions can be measured by the cumulative actions of all organizations: a yoga studio in Wichita, Kansas, the Exxon corporation, Doctors without Borders.
Bush House South East Wing Room 2.09, King’s College London
About the Speaker:
Professor Scott Page is the John Seely Brown Distinguished University Professor of Complexity, Social Science, and Management at the University of Michigan, Ann Arbor.