Corporate social responsibility implies extra care for the wellbeing of stakeholders different from shareholders. In our theoretical model we show that, when this principle implies that more CSR oriented companies incorporate stakeholders' wellbeing constraints, it translates into higher sensitivity of profits to economic shocks. Our empirical analysis finds support for this hypothesis showing that CSR attributes which relate to positive contributions to stakeholders' wellbeing significantly and positively affects idiosyncratic profit volatility.

The increasing attention of prot maximising corporations to corporate social responsibility (CSR) is a new stylized fact of the contemporary economic environment. In our theoretical analysis we model CSR adoption as the optimal response of a prot maximising rm to the competition of a not for prot corporate pioneer in presence of a continuum of consumers with heterogeneous preferences toward the social and environmental features of the nal good. CSR adoption implies a trade-o since, on the one side, it raises production costs but, on the other side, it leads to the accumulation of ethical capital. We investigate conditions under which the prot maximising rm switches from price to price and CSR competition by comparing monopoly and duopoly equilibria and their consequences on aggregate social responsibility and consumers welfare. Our ndings provide a theoretical background for competition between prot maximising incumbents and not for prot entrants in markets such as fair trade, organic food, ethical banking and ethical nance.

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Life satisfaction, Poverty, Development projects, Fair trade,

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