Law and Economics Colloquium
Presents:
Hajin Kim
University of Chicago
Self-fulfilling Stakeholder Expectations
Tuesday September 28, 2021
4:10pm - 5:45pm
ZOOM Meeting
https://zoom.us/j/99730854871
Abstract: Under theories of stakeholder capitalism (stakeholderism), corporate leaders would care more about the social impacts of corporate decisions. Critics dismiss stakeholderism as hopelessly idealistic and counterproductive. Corporations, they argue, will inevitably maximize profits; they can’t (and shouldn’t) care about society. These critics have failed to account for the importance of expectations. Our expectations about appropriate firm behavior are selffulfilling to some degree. If everyone believes that corporations must maximize profits, nobody will protest when corporate pursuits of profits harm society—the firms were fulfilling their duty and meeting investor and consumer expectations. But consider what would happen if people instead believed that corporations should consider their social impacts, even sometimes at the expense of profits. Consumers, employees, and investors would be more willing to object to corporate harms by changing their purchasing, job choice, and investing behaviors or by petitioning corporate leaders for redress. Those objections would change firm incentives. And in response to those tangible incentives, even purely profit-maximizing firms would try to do more good and less harm. Ironically, then, stakeholder expectations of firm morality could help make some level of firm morality profitable. Put another way, expecting that firms should sometimes sacrifice profits in the service of social welfare could create more opportunities for corporate decisions that both maximize profit and benefit society. This Article explores this insight to develop Stakeholder Expectations Theory—stakeholder expectations that firms can and should care about society can lead corporations to internalize more externalities. In a preregistered study with over 600 participants, the Article finds initial empirical support, though further tests are needed. Stakeholderists try to get corporate leaders to care about society. Stakeholder Expectations Theory suggests that, even if they fail, normative and legal interventions that encourage stakeholderist thinking can make even purely profit-maximizing firms act with social impacts in mind
Hajin Kim uses principles from social psychology and economics to study environmental law. Her work examines how moral and social influence can shape environmental regulation and firm behavior. Hajin received her BA in economics, summa cum laude, from Harvard, her JD from Stanford Law School, and her PhD from Stanford's Emmett Interdisciplinary Program in Environment and Resources. Before attending Stanford, Hajin worked for the Boston Consulting Group. Hajin clerked for Judge Paul Watford of the US Court of Appeals for the Ninth Circuit and Justice Ruth Bader Ginsburg of the US Supreme Court.
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