Optimal growth under socially responsible investment: a dynamic theoretical model of the trade-off between financial gains and emotional rewards

Abstract

Socially responsible investment (SRI) evolved, along the last two decades, from an almost unexplored topic in science to a recurrent theme of research and debate in Economics and Finance. The growing interest on the theme has two fundamental causes. On one hand, empirical evidence unveils a change of behavior of investors, who typically no longer restrict their decision-making to a strict financial analysis; ethical, social, environmental, and political concerns are also on the forefront of investors’ assessments. On the other hand, the economic science is witnessing a paradigm shift characterized by a progressive departure from the orthodox rational deliberation framework and in the direction of the introduction of behavioral elements. In this study, an intertemporal model is proposed to serve as a benchmark for the evaluation of the implications of social and environmental awareness upon investors’ decisions and investment performance. The model is a simple optimal control framework that highlights the trade-off between financial returns and the satisfaction emanating from investing in firms or projects guided by ethical values and by good governance principles. Better financial outcomes may come with a social damage that the representative agent in the model will include, with a negative sign, in her utility function. Long-term steady-state results and transitional dynamics are duly evaluated for neoclassical and endogenous growth versions of the model.

A novel framework to unearth corporate hypocrisy: Connotation, formation mechanism, manifestation, and contagion effect

“…Shareholders did not blindly praise CSR behavior but tended to pursue CSR strategies that reduced the risk of high‐cost accidents (Gomes, 2020). Shareholders have a selective preference for social responsibility. …”

“…"Swim with the stream" reflects that some stakeholders are infected by corporate hypocrisy, which has a spreading or contagion effect when it comes to unethical behavior. For example, compared with whether hypocritical behavior is ethical or not, some shareholders only pay attention to whether it brings benefits or risks (Gomes, 2020), some employees and stakeholders, based on self-interest, imitate and follow corporate hypocritical behaviors, thus showing immorality (Yang et al, 2020).…”

“…Primary stakeholders Shareholders • Shareholders are concerned about the benefits or risks brought by corporate hypocrisy. Shareholders did not blindly praise CSR behavior but tended to pursue CSR strategies that reduced the risk of high-cost accidents (Gomes, 2020).…”

Investigation of Socially Responsible Investment Strategies Taxonomy

“…Зростання інтересу до теми має дві основні причини. З одного боку, емпіричні дані показують зміну поведінки інвесторів, а з іншого боку, економічна наука поступово впроваджує поведінкові елементи (Gomes, 2020).…”