Club IO: Florian Schütt
Title: Martin Oehmke and Markus Opp, "A theory of socially responsible investment," Review of Economic Studies (forthcoming)
Abstract
We characterize the conditions under which a socially responsible (SR) fund induces firms to reduce externalities, even when profit-seeking capital is in perfectly elastic supply. Such impact requires that the SR fund’s mandate permits the fund to trade off financial
performance against reductions in social costs—relative to the counterfactual in which the fund does not invest in a given firm. Based on such an impact mandate, we derive the social profitability index (SPI), an investment criterion that characterizes the optimal ranking of
impact investments when SR capital is scarce. If firms face binding financial constraints, the optimal way to achieve impact is by enabling a scale increase for clean production. In this case, SR and profit-seeking capital are complementary: Surplus is higher when both investor types are present.
Speaker: Florian Schütt
Time: 10:45-11:45 hrs
Host: Konrad Borowicz
Moderator: Konrad Borowicz