Environmental corporate social responsibility, R&D and disclosure of “green” innovation knowledge

Abstract

The literature on the environment has analyzed how firms carry out R&D to reduce their pollutant emissions, assuming that they maximize profits. However, empirical evidence shows that firms are increasingly concerned about Environmental Corporate Social Responsibility (ECSR). Following that evidence, we consider that the objective function of firms incorporates the environmental damage they generate as part of their social concern. We find that how firms perform environmental R&D depends crucially on the degree to which they care about ECSR. If that degree is low enough, firms agree to set up an Environmental Research Joint Venture (ERJV) under which they coordinate their R&D investments and fully share their technological knowledge. This is the result obtained when firms maximize profits. If the degree is high enough, firms enter into an ERJV in which each fully shares its technological expertise but they do not coordinate their R&D investments. Finally, if the degree is intermediate, firms neither set up an ERJV nor disclose information. Social welfare is the highest and environmental damage the lowest if firms form an ERJV and coordinate their R&D investments. Therefore, the way in which firms organize their R&D activities is not always the most socially preferable.