Lecture 7

Question 1

what is corporate social responsibility

Answer 1

the pursuit of social objectives by private sector firms

Question 2

what is friedmans argument for social responsibility (and why)

Answer 2

that the only social responsibilities for business is profit maximization
- social responsiblity leads to less revenue and this higher prices for consumers
- choosing specific groups to be socially responsible towards is not the job of the company

Question 3

when does profit maximization fail? (Kenneth Arrow)

Answer 3

1) negative externalities
2) asymmetric information

Question 4

what is stakeholder theory

Answer 4

firms have a responsibility to all STAKEholders, not just shareholders

Question 5

what are the four potential solutions to market failure

Answer 5

1) regulation
2) taxation
3) legal responsibility
4) social responsibility

STLR