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Corporate Social Responsibility in the work place

Experimental evidence from a gift-exchange game

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Abstract

We analyze the effect of investments in corporate social responsibility (CSR) on workers’ motivation. In our experiment, a gift exchange game variant, CSR is captured by donating a certain share of a firm’s profit to charity. We are testing for CSR effects by varying the possible share of profits given to charity. Additionally, we investigate the effect of matching mission preferences, i.e., a worker preferring the same charity the firm donates to. Our results show that, on average, workers reciprocate investments in CSR with increased effort. Matching mission preferences also result in higher effort, independently of the extent of the CSR investment.

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Notes

  1. Corporate social responsibility propagates that firms engage voluntarily in costly efforts to address social or environmental issues. Firms may also try to directly reduce, or avoid altogether, negative externalities of their business activities. For general discussions of CSR, see, e.g., Baron (2007, 2008, 2009), Auld et al. (2008), Bénabou and Tirole (2010), or Kitzmueller and Shimshack (2012).

  2. Note that CSR activities are manifold. We focus on donations to charity for practical reasons. Auld et al. (2008) discuss seven CSR categories, including corporate philanthropy, which is based on charitable giving by firms. Although they categorize corporate philanthropy as one of the ‘old CSR’ categories, it is still a valid CSR instrument used by firms.

  3. A database developed by Kinder, Lydenberg, Domini & Co., which makes organizations’ Corporate Social Performance publicly available.

  4. Recently, Fehrler and Kosfeld (2012), Tonin and Vlassopoulos (2012), Gerhards (2013) have experimentally tested the model of Besley and Ghatak (2005). Note that in these experiments agents in mission treatments generate a donation to an NGO of their own choice or to the NGO they are actually working for. Hence, agents’ effort contributes to a cause of their liking, but mission preferences of principals and agents do not actually match as in our experiment.

  5. Such alternatives include concerns for status (Moldovanu et al. 2007; Besley and Ghatak 2008), awards (Kosfeld and Neckermann 2011), and communication (Brandts and Cooper 2007). See List and Rasul (2011) for an overview of field experiments and Charness and Kuhn (2011) of laboratory experiments.

  6. This also relates to intention-based models of reciprocity in which agents reciprocate kind behavior (cf. Rabin 1993; Dufwenberg and Kirchsteiger 2004). Given the experimental evidence that effort increases with wage offers, it is reasonable to assume that any wage offer above the minimum is regarded as kind and reciprocated if agents are reciprocal. In this paper, we abstain from modeling reciprocal behavior based on first and second order beliefs as we are mainly interested in the effects of CSR and matching mission preferences in addition to reciprocating wages.

  7. Note that with γ entering the agents’ utility function additively, agents will reciprocate a mission match even when principals do not spend a positive share of their profit for the chosen cause. This approach is in line with the economics of identity literature (cf. Akerlof and Kranton 2000), which proposes that individuals treat others that are seen as alike better than those seen as more distinct. One may think of an alternative specification in which γ enters the agent’s utility function multiplicatively, i.e., \(U_{ia}^{A} = e_{ia}[(1+\gamma)f_{ia}(\beta_{jp}) + \rho_{i}(w_{j})] + w_{j} - c(e_{i}) - c_{0}\) such that agents with matching mission preferences will care more about the level of CSR. We will consider and test this alternative specification in Sect. 4.

  8. With respect to intention-based models of reciprocity, one might think that the opposite will happen. A greater β would reduce the set of possible monetary payoffs for the principal and, consequently, an equitable payoff. It seems that it becomes cheaper for the agent to return the favor of a higher wage. However, this is not the case; as part of the effort translates into a CSR investment, it is harder for the agent to reach an equitable payoff. The two effects cancel each other out exactly.

  9. In CSR2, investing in CSR is an on-off decision, similar to the environment described in Besley and Ghatak (2005). The argumentation is similar with continuous β values and increasing the maximum of β in one environment. However, as we will use the categorial set on β values in the experiment, the argument is made by contrasting two environments which differ in the choice set on β values.

  10. We used a rotation matching known as turnpike protocol, first introduced by Cooper et al. (1996), to ensure that participants cannot affect the decisions of future participants they will be paired with through their choices in the current match.

  11. Participants could choose from Amnesty International, Greenpeace, Caritas, Doctors without Borders, and Unicef. The questions before and after participants know about the game are slightly different. Before knowing about the game, they are asked to which charity they would like to donate 10 euro. After knowing about the game, they are asked to which charity they want to donate money from the experiment. If the sixth option is chosen, a random draw at the end of the experiment determines one of the five charities, which is clearly described in the instructions. See the Appendix for translated materials of the CSR4 treatment.

  12. While evidence on the equivalence of the strategy method and the direct response method is not entirely conclusive, there has so far not been an instance where a treatment effect found with the strategy method was not also found with direct responses (Brandts and Charness 2011).

  13. Only firms know the actually chosen β to minimize workers’ possibility to educate firms by choosing, e.g., a very low effort after being matched with a number of firms choosing a low level of CSR. Workers can actually calculate the β from their payoff if, in their choice, they have discriminated between the four levels of β. However, this is not immediately obvious and therefore requires some effort to figure it out.

  14. The use of mixed effects models is supported by likelihood ratio tests that compare the mixed effects specifications to respective linear regression models.

  15. 13.7 % picked Amnesty International, 14.44 % Greenpeace, 9.26 % Caritas, 40.74 % Doctors without Borders and 16.67 % Unicef. 5.18 % did not choose any of the charities.

  16. Do participants anticipate the effect of matched mission preferences? Do they understand that donating to charity is perceived as good by many workers? There may be a discrepancy between one’s own charity preference and the preference one believes the others may have. In such a case deviating from one’s own charity preference could make sense. In CSR4 15 out of 150 participants changed their preferred charity, and in CSR2 17 out of 120 did so. Of the 32 switchers, 15 were firms and 17 were workers. Overall, 14 had not picked a charity when they were first asked, 5 had chosen Amnesty International, 4 Greenpeace, 3 Caritas and 6 Doctors without Borders. It could well be that some participants regarded the pick of a charity as strategically relevant after learning the rules of the game and, hence, they made a change, but we only found few cases.

  17. Results are similar, when CSR investment is reduced to an on-off decision (treatment CSR2). The wage offered is highly significant in all specifications, effort is significantly higher for β=0.1 (specification II), the interaction term between wage and β=0.1 is significant at the 10 % level (III–V), and the coefficient of the match dummy is positive and significant at the 5 % level (IV). The interaction between wage and matching mission preferences is not significant (V).

  18. Besley and Ghatak (2005) show that firms may reduce monetary incentives, e.g., wages, when they employ a worker whose mission matches that of the firm. While our experiment is not designed to test for this type of substitution (our firms do not know whether their worker subscribes to the same mission), we can check whether, in a similar vein, firms substitute wages and the extent of their CSR investment.

  19. See, e.g., Turban and Greening (1997), Frank (2004), or Nyborg and Zhang (2011).

  20. Note that Fehrler and Kosfeld (2012) show that agents who self-select into a contract including a donation to their preferred NGO but lower fixed pay choose higher effort. Individuals’ self-selection into sectors or organizations with a mission similar to their own is also analyzed by Serra et al. (2010). Using a survey and an experimental measure of pro-social motivations for Ethiopian health professionals, they find that these can predict the decision to work in the nonprofit sector. Moreover, pro-social workers earn less in the nonprofit sector than their colleagues, scoring lower on measures of pro-social motivation.

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Acknowledgements

Financial support from the Max Planck Society is gratefully acknowledged. We would like to thank seminar audiences at the 2011 ESA world meeting in Chicago, the 2011 EEA-ESEM meeting in Oslo, the University of Heidelberg and the Düsseldorf Institute for Competition Economics for their feedback. We thank two anonymous reviewers for valuable comments that lead to a major revision of the manuscript. We are grateful to Stephan Heblich, Karl Schlag and Joël van der Weele for valuable discussions. Dvin Galstian Pour provided excellent research assistance.

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Authors and Affiliations

  1. Alfred Weber Institute of Economics, University of Heidelberg, Bergheimer Strasse 58, 69115, Heidelberg, Germany

    Hannes Koppel

  2. Max Planck Institute of Economics, Kahlaische Strasse 10, 07745, Jena, Germany

    Tobias Regner

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  1. Hannes Koppel
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  2. Tobias Regner
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Correspondence to Hannes Koppel.

Appendix

Appendix

1.1 Instructions

1.1.1 Rating of charitable organizations before experimental instructions

Imagine you have 10 Euro at your disposal to donate it to a charity. To which of the following charities would you like to donate the 10 Euro?

  • Amnesty International

  • Greenpeace

  • Caritas

  • Doctors Without Borders

  • Unicef

  • I don’t care

1.1.2 General rules

Welcome and thanks for participating in this experiment! In this experiment you can earn a certain amount of money, which depends on your and the other participants’ decisions in the experiment. It is therefore important that you read the following instructions carefully.

Please note that these instructions are meant for you only and that you are not allowed to exchange any information with the other participants. Similarly, during the entire experiment it is not allowed to talk to the other participants. If you have any questions or concerns, please raise your hand. We will answer your questions individually. Please do not ask your question(s) aloud. It is very important that you follow these rules, since otherwise we have to stop the experiment. Please also turn off your mobile phones now.

1.1.3 General procedure

The experiment lasts about 75 minutes. Each decision will be explained again briefly on the screen. While you make decisions, the other participants also make decisions which may influence your payoff. During the experiment you can earn money. Your payoff will be calculated in ECU (Experimental Currency Units) and 1 ECU=0.10 EURO. At the end of today’s experiment your earnings will be converted into EURO and you are paid in cash. In addition, you will receive 2.50 Euro as a show-up payment. Your payoff from the experiment depends on your decisions and the decisions of the other participants. However, only 3 of the 15 rounds will be chosen randomly and you will be paid according to the payoff from these rounds only.

After you have filled in a questionnaire the experiment will end and you will receive your payoff.

Again the procedure as an overview:

  • Reading of the instructions, test questions (online)

  • Decision situations

  • Questionnaire

  • Payoff and end of the experiment

1.1.4 Details of the procedure

The experiment consists of 15 rounds. In each round two participants interact: a company and an employee.

Procedure of one round:

  1. 1.

    The company sets a wage and a donation factor.

  2. 2.

    Next, the employee decides whether he/she accepts this offer or not.

  3. 3.

    In case he/she accepts the offer, he/she then decides on the effort level.

The profit of the company depends on

  • the effort level,

  • the paid wages,

  • and the donation factor.

The income of the employee depends on

  • the received wage and

  • the cost of effort.

You will be informed whether you act in the role of the company or in the role of the employee over the course of the experiment. The allocation of each role is executed randomly and with equal probabilities. You will stay in the allocated role for the whole experiment. Hence, it is very important that you familiarize yourself with both roles.

In each round you are randomly and anonymously matched with another participant of the experiment, that you have not interacted with before. The company’s chosen wage applies only to the employee assigned to this company in this round. Likewise, the employee’s decisions (accepting or rejecting the offer and choosing an effort level following acceptance) only apply to the company that was assigned to this employee in this round. At the end of each round the company will be informed about the employee’s choices. There will be no information regarding the decisions from previous rounds.

1.1.5 How you earn money during the experiment

Earnings as employee:

  • If an employee rejects the offered wage, he/she will earn nothing. A rejection is expressed by entering 0 as the effort level.

  • In case of acceptance of the offered wage the employee receives the offered amount. However, the fixed travel expenses (20 ECU) and the cost of effort will be deducted from this wage first.

  • The effort level can be chosen on a scale from 0.1 to 1 in intervals of 0.05 and leads to costs according to the following table:

    e

    0

    0.1

    0.15

    0.2

    0.25

    0.3

    0.35

    0.4

    0.45

    0.5

    c(e)

    0

    0

    0.5

    1

    1.5

    2

    3

    4

    5

    6

    e

    0.55

    0.6

    0.65

    0.7

    0.75

    0.8

    0.85

    0.9

    0.95

    1

    c(e)

    7

    8

    9

    10

    11

    12

    13.5

    15

    16.5

    18

  • A value of 0.1 corresponds to very low effort, a value of 0.2 is a slightly higher effort level and a value of 1 represents the maximum effort level.

  • The higher the chosen effort the more profitable the outcome for the company.

  • The earnings of the employee are calculated according to the following formula:

    $$\mbox{Earnings of the employee} = \mbox{wage} - \mbox{cost of effort} - \mbox{20 ECU} $$

  • During the experiment the company can donate part of its profit. This share can be 0.0, 0.1, 0.2 or 0.3. The effort level will be asked for each possible level of the donation b, which the company can choose. For the earnings only the actually chosen share of donation will be relevant.

  • After each round you will receive information about the offered wage, the rendered effort level and your earnings from this particular round.

Earnings as company:

  • In each round each company receives a starting capital of 120 ECU. This can be used for wage payments. In order to do so the company chooses a wage between 20 and 120 ECU in intervals of 10 ECU. If, for example, the company offers a wage of 120 ECU, it will have no remaining ECU left. If, for example, it offers a wage of 20 ECU, it will have 100 ECU left.

  • In case the offered wage of a company is rejected, the company earns nothing. This means, the starting capital remains unused and expires.

  • In case the offered wage of a company is accepted, the remaining ECU of this company will be multiplied by the chosen effort of its employee. This corresponds to the profit of the company.

  • Additionally, the company decides on a donation share b, which will be paid from the profit of the company to an organization that will be chosen at the beginning of the experiment. In doing so the company can set 0.0, 0.1, 0.2 or 0.3 as a value for b. The choice of the employee will be asked for all four possible values of b afterwards. That is, the employee will be informed about the offered wage and the organization being donated to and will then make a decision on the effort level for all possible b.

    $$\begin{aligned} &\mbox{Profit of the company} = (120~\mbox{ECU} - \mbox{wage}) * \mbox{effort} \\ &\mbox{Earnings of the company} = (1-b) * (120~\mbox{ECU} - wage) * \mbox{effort} \end{aligned}$$

  • After each round you will receive information about the offered wages, the chosen donation share, the rendered effort, the profit, the donated amount and your earnings from this particular round.

1.1.6 Your payoff from the experiment (3 out of 15 rounds)

Your earnings from one round are calculated as presented above. For companies the donated amount, according to the donation share to the chosen organization, will be deducted from the profit. The received contributions will be donated online under the supervision of two participants after the experiment.

For your payoff from the experiment only the earnings from three out of the 15 rounds are relevant. These rounds are chosen randomly at the end of the experiment. The according payoff will be paid to you in cash directly after the end of the experiment, that is, after you completed the final questionnaire.

1.1.7 Rating of charitable organizations after experimental instructions

Please choose your preferred charity from the menu below, for which you would like to donate within the experiment.

  • Amnesty International

  • Greenpeace

  • Caritas

  • Doctors Without Borders

  • Unicef

  • I don’t care (at the end of the experiment one charity will be randomly chosen)

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Koppel, H., Regner, T. Corporate Social Responsibility in the work place. Exp Econ 17, 347–370 (2014). https://doi.org/10.1007/s10683-013-9372-x

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