Does Corporate Social Responsibility Matter for Privatization?

ABSTRACT This paper investigates the interplay between public firms' privatization levels and private firms' endogenous corporate social responsibility (CSR). We show that when privatization is exogenously determined, CSR and privatization are negatively correlated in a Cournot mixed duopoly. When privatization is endogenously determined, Stackelberg competition with a leading public firm, relative to Cournot competition and Stackelberg competition with a leading private firm, leads to a higher degree of nationalization of the public firm and lower social welfare. Whereas in a mixed triopoly comprised of a public firm, a CSR private firm, and a non‐CSR private firm, the correlation between CSR and privatization becomes positive. In contrast, the mixed triopoly yields higher levels of privatization and social welfare but a lower degree of CSR.