Who benefits from corporate social responsibility in the presence of environmental externalities?

We investigate firms’ endogenous corporate social responsibility (CSR) strategies with environmental externalities and determine who will benefit from the firms’ CSR activities. Taking the government’s emission tax into account, a duopoly model is formulated, characterized by three CSR strategy structures: traditional strategy, mixed CSR strategy, and CSR compliance strategy. The results show that implementing a CSR strategy does not guarantee that firms will always receive the highest payoff. The optimal CSR strategy for firms relies on the level of abatement cost efficiency and the degree of CSR. Firms’ CSR activities have no impact on consumers’ benefits, while the environment and social welfare can both benefit from the firms’ CSR activities. However, contrary to the finding that the environment improves as more firms engage in CSR, social welfare may actually decrease with an increasing number of firms involved in CSR, especially when the exogenous level of CSR is high. This study generates significant insights into firms’ CSR strategies and provide a theoretical foundation for government intervention in firms’ CSR activities.