Economic ethics and corporate social responsibility

A.Y. 2021/2022
Overall hours
Learning objectives
The course aims at offering a deep understanding of "corporate social responsibility" (CSR) which will be seen as a movement aiming at the affirmation of new models of governance of the firms - in contrast with the shareholder primacy model - and to make companies consistent with sustainable development goals. More specifically the course, beyond the understanding of the recent history of the CSR movement, through presentation of the new institutionalist theory of the firm aims at offering a solid knowledge of the economic explanations of corporate governance but also their limitations. And then it introduces participants to business ethics methods and theories aimed at viewing corporate governance in the light of social justice. By means of these economics and ethics conceptual tools, the goal of the course is offering a new view of the firm (and CSR) based on the social contract theory, able to answer both the needs of justification and implementation, at the intuitive, theoretical and operational level.
Expected learning outcomes
Knowledge and understanding: at the end of the course students will possess a wide understanding of the development of the CSR moments in the last twenty year, and the reason of the recurrent demand for CSR. Moreover, they will be able to use the concepts of transaction cost economics to explain different form of economics governance included the firm as a unified governance institution, but will also understand why the efficiency explanation is not sufficient. They will then be put in condition to use different business ethics views in order to justify economic institutions, by apprehending the methods and form of ethical reasoning. At last, the student will possess a deep understanding of a new model of corporate governance and socially responsible corporation, based on both economics and ethics, and on the social contract theory in particular. S/he will possess the philosophical intuition but also knowledge of the mathematical modelling of the theory, both in the perspective of providing justification and identifying the conditions for its implementation. Ability to apply knowledge: At the end of the course the student will be able to disentangle a proper and effective policy aimed at implement CSR at corporate level or through a public policy from initiatives that are doomed to fail, both because the action plan cannot elicit the necessary consensus and ethical justification, and because it does not employs regulatory governance and management tools necessary to elicit positive reputation effects or endogenous conformity preference. Beyond the ability of assessing the company initiatives, students will also possess the methodology for implementing CSR management tools consistent with the model.
Course syllabus and organization

Single session

Lesson period
First semester
Most students will attend the course in person (classroom) . Only those who will be incapable to get the green pass for serious reasons (according to the University regulations) will be allowed to attend by MS teams connections in the usual mode (i.e by a simultaneous connection with the classes given to student attending in person in Milan)
Course syllabus

a. A very brief introduction to the main international and national initiatives on CSR from the beginning of the new century:
i. The corporate voice
ii. The early national Multi-stakeholder projects: UK, Italy, Spain, Germany;
iii. International initiatives : the ONU social Compact, EU commission and EU Parliament initiatives, self-regulatory standards: SA8000, GRI , ISO guidelines.

b. An explanation of why CSR got so much attention in the last two decades, even if it wasn't completely successful

i. Recurring corporate scandals
ii. Globalization and its discontents
iii. The global financial crisis and the failure of the shareholder value model
iv. An explanation of CSR based on the economic theory of transaction costs: CSR as battle- ground between two tendencies: privatization and responsibility of corporate actors
v. Multiple models of CG and the role of social norms
vi. A new framework: sustainability, social responsibility and CSR .

a. The economists' debate on the nature of corporation

i. New institutional economics, transaction cost economics and the theory of the firm as hierarchy (Williamson)
ii. The GHM model of incomplete contract and the theory of the firm
iii. the problem of multiple specific investments abuse of authority and the need of an wider explanation base of the stakeholders agreement.

b. From the principal agent model of CG to alternative theories of the firm: team production and the mediating hierarchy, the cooperative game theory of the firm and alternative models of capitalism (USA managerialism, Germany and Japan), the relevance of social norm for CG and the definition of economic institution .

a. Meta-ethics, normative ethics and applied ethics.

b. Moral sentences: prescriptive , universalizable and overriding,

c. Alternative criteria of classification of moral arguments and theories.

d. Alternative ethical theories applied to business: Utilitarianism, libertarianism, contractarianism and contractually, justice as fairness, conventionalism, communitarianism, the capability approach .

e. reckoning ethical theories: an experiment.

f. From economic ethics to business ethics .
i. Moral responsibility.
ii. Is the corporation morally responsible? Who is morally responsible?

A) Back to CSR: An alternative to the shareholder model of the firm, the socially responsible enterprise.

a. general definition; CSR as extended model of corporate governance and the multi-stakeholder model of CG
i. stakeholders (definition) and fiduciary duties
ii. Is it more efficient? a critical reading of the new institutional theory of the firm and the problem of abuse of authority .

b. Going more in depth into the problems and virtues of the socially responsible corporation
i. the problem of conflicting stakeholders and the unique objective function, the corporate actor as artificial agent and its justification
ii. the social contract of the firm, and the Nash bargaining solution as the objective function of the firm (again Aoki)
iii. the veil of ignorance applied to management (again Blair and Stout)
iv. endogenous emergence of the socially responsible corporation through impartial agreements : pactum unionis and pactum subjectionis
v. A list of fiduciary duties toward multiple stakeholders

B) A wider social contract foundation of CSR, from the social contract of the firm to the constitutional contract on CG principles.

a. The constitutional and post constitutional contracts approach to the choice of corporate governance structures.
i. Proportionality to need and proportionality to contribution;
ii. Correspondence to cooperative / bargaining game solutions (Nash and Shapley) , The problem of institutional feasibility .

b. What happens if the firm emerges form a stare of nature:?
i. the Binmore-Rawls theory of the veil of ignorance as equilibrium selection device
ii. Egalitarianism is the only solution consistent with stability and impartiality
iii. The egalitarian theory of corporate governance
iv. Against received views: A libertarian cannot be but egalitarian; first equality then efficiency.

c. General Justice and CSR
i. Corporate governance takes a place in the Rawls' theory of justice and in constitutional regulation
ii. Sen's capability approach applied to the firm
iii. Other way .no welfare state may work: the paradox of Penelope canvass

C) Implementing the socially responsible model of corporation. Ex post compliance with the social contract of the firm.

C.1. The first model of implementation based on reputation mechanism. The apparently voluntary nature of CSR and the possibility of sophisticated opportunism, Self-interest and reputation models

a. Reputation effects and the fragility of reputation.

b. A proper model of reputation effect under unforeseen contingencies and the design of ethical standards under limited knowledge .

c. The everlasting problem of multiple reputations, the cognitive use of the veil of ignorance to select a unique fair equilibrium point; framing and limited reasoning again at work.

C.2 Again on implementing the socially responsible corporation and ex post compliance with the social contract of the firm: non egoistic motivations based on deliberation, agreement and the emergence of a preference for reciprocity. The contribution of behavioral and experimental economics .

a. Rawlsian sense of justice and two kind of preferences;

b. Conformity preferences and utility functions in behavioral and psychological games with ex ante agreements as cheap talk.

c. Conformity preferences in simple and repeated games:
i. conformist preferences in the trust game and prevention of abuse of authority.
ii. strong and weak stakeholders -network of games and the punishment of the irresponsible corporation.

d. Experiments and empirical evidence in favor of conformity preferences:
i. the experimental exclusion game
ii. distributive justice with production and the selection of liberal egalitarianism
iii. Why do we believe in reciprocal conformity? Explanation based on cognitive views of limited reasoning .

e. Alternative forms of economic organization:
i. the emergence and stability of the nonprofit organization;
ii. the commons and its cooperative governance
f. A new repartition of social responsibility among the State, private actors and non- profit organizations as a system: shared social responsibility

C.3 A management standard for the socially responsible company: the Q-RES model and tools- set

a. Vision
b. Codes of ethics
c. Ethical corporate culture
d. Implementation and Quality standard for different processes
e. Ethical audit
f. Social reporting
g. Independent third party verification
Prerequisites for admission
In order to follow profitably this course students should have attended the course of economics, economic policy and social justice of the LLM first year. Attendance of a course of corporate law is recommended even if not prerequisite
Teaching method
Teaching methods
Lectures and open discussion on any topic during classes. On some topics (i.e. recognizing theories and moral responsibility) discussion of cases will helps the presentation of the subjects
Teaching Resources
Teaching materials and readings list

· Lesson Notes: Each class is related to lesson notes that will be uploaded on the course web page.

· Books of general reference:
- L.Sacconi. The social contract of the firm, Springer Verlag, 2000.
- L.Sacconi, M. Blair, Ed Freeman and A.Vercelli (eds.) (2010) , Corporate Social Responsibility and Corporate Governance. The Contribution of Economic Theory and Related Disciplines , Palgrave Macmillan, Basingstocke Hampshire.

· One of the following books on ethics & economics in alternative :

- For those who reads Italian: Lorenzo Sacconi: Etica degli Affari , Milano Il Saggiatore (chapter 2 and 3)
- Will Kymlyka, Contemporary Political Philosophy, an introduction, Oxford UP, chapters 1,2,3,4,6
- Daniel M. Hausman, Michael S. McPherson, Economic Analysis, Moral Philosophy and Public Policy, Cambridge UP, chap. 6, 7, 10 , 11, 12

· Reading list referred to specific parts of the course

1) The economic theory of the firm

a. New institutional theory of the firm
- David Kreps, A course in microeconomic theory, chapter 20: transaction costs economics and the firm
-Chapters authored by O.Williamson, Masahiko Aoki, M.Blair and L.Stout, in L. Sacconi, M. Blair, R.E. Freeman; A. Vercelli, (eds.) CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE: THE CONTRIBUTION OF ECONOMIC THEORY AND RELATED DISCIPLINES, UK:Palgrave Macmillan
b. Bargaining theory :
- K. Binmore Fun and game. Chapter 5: making deals pp. 169-203
- Shaun Hargreaves Heap- Yanis Varoufakis, Game theory , chapter 4 bargaining games pp.127-148, 164-171
c. Incomplete contracts and GHM model:
- Oliver Hart, Residual control right, in Palgrave Dictionary of Economics and the law, pp. 330-335

2) Introductions to the social contract theory of CSR

- R E Freeman et al. Stakeholder as the basis of capitalism, in L. Sacconi, M. Blair, R.E. Freeman; A. Vercelli, (a cura di) CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE: THE CONTRIBUTION OF ECONOMIC THEORY AND RELATED DISCIPLINES, UK:Palgrave Macmillan.

- L. Sacconi (2006) "CSR as a model of extended corporate governance, an explanation based on the economic theories of social contract, reputation and reciprocal conformism", in F. Cafaggi (ed.), Reframing self-regulation in European private Law, Kluwer Law International , London, ISBN 9041125310.

- L. Sacconi (2013). "Ethics, Economic Organisation and the Social Contract" In A. Grandori (a cura di), HANDBOOK OF ECONOMIC ORGANIZATION: INTEGRATING ECONOMIC AND ORGANIZATION THEORY. p. 112-136, Cheltenham, UK · Northampton, MA, USA:Edward Elgar Publishing, ISBN: 9781849803984

3) More advanced model of social contract theories of the firm and CSR; alternatively, two of the following:

- L. Sacconi (2006). "A Social Contract Account For CSR as Extended Model of Corporate Governance (I): Rational Bargaining and Justification". JOURNAL OF BUSINESS ETHICS, vol. 68, p. 258-281, ISSN: 0167-4544,
- L. Sacconi (2011). "A Rawlsian view of CSR and the Game Theory of its Implementation (Part I): The Multi-stakeholder Model of Corporate Governance". In: L. Sacconi, M. Blair, R.E. Freeman; A. Vercelli, (a cura di) CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE: THE CONTRIBUTION OF ECONOMIC THEORY AND RELATED DISCIPLINES. p. 157-193, UK:Palgrave Macmillan, Basingstoke,

- L. Sacconi (2011)." A Rawlsian view of CSR and the Game Theory of its Implementation (Part II): Fairness and Equilibrium". In L. Sacconi, M. Blair, R.E. Freeman; A. Vercelli, (a cura di) CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE: THE CONTRIBUTION OF ECONOMIC THEORY AND RELATED DISCIPLINES. p. 194-254, UK:Palgrave Macmillan,

- Lorenzo Sacconi, Magalì Fia, "Justice and Corporate Governance: New Insights from Rawlsian Social Contract and Sen's Capabilities Approach", Journal of Business Ethics, First Online: 22 June 2018, pp 1-24, Print ISSN 0167-4544, Online ISSN 1573-0697.

4) Ex post Compliance, Conformist preferences and Experiments, alternatively two of the following

- L. Sacconi (2007). "A Social Contract Account for CSR as Extended Model of Corporate Governance (II): Compliance, Reputation and Reciprocity". JOURNAL OF BUSINESS ETHICS, vol. 75, p. 77-96, ISSN: 0167-4544

- L. Sacconi, M. Faillo (2010)." Conformity, Reciprocity and the Sense of Justice. How Social Contract-based Preferences and Beliefs Explain Norm Compliance: the Experimental Evidence". CONSTITUTIONAL POLITICAL ECONOMY, vol. 2010, p. 171-201, ISSN: 1043-4062,

- L. Sacconi (2011). "A Rawlsian View of CSR and the Game Theory of its Implementation (III): Conformism, Equilibrium Refinement and Selection" in Sacconi e Degli Antoni , Social capital, corporate social resposability, economic behavior and performance, Palgrave 2011,
- L. Sacconi, M. Faillo, S. Ottone (2011). "Contractarian Compliance and the 'Sense of Justice': A Behavioral Conformity Model and Its Experimental Support". ANALYSE & KRITIK, vol. 2011, p. 273-310, ISSN: 0171-5860
( )

- Giacomo Degli Antoni, Marco Faillo, Pedro Francés-Gómez, Lorenzo Sacconi, "Distributive Justice with Production and the Social Contract. An Experimental study", EconomEtica WP n. 60, sept. 2016,

5) Alternative forms of economic organization
- L. Sacconi ; G. Grimalda, "The Constitution of the Not - For - Profit Organisation: Reciprocal Conformity to Morality" in CONSTITUTIONAL POLITICAL ECONOMY, v. 16, n. 3 (2005), p. 249-276.

6) CSR standards of self-regulation
- Sacconi, DeColle, Baldin , The Q-RES Project: The Quality of the Social and Ethical Responsibility of Corporations
Assessment methods and Criteria
Written exam: for each part of the course program students will have a choice between two or more open questions to be answered. So the exam may require to answer from 3 to 4 questions. Each main question will be articulated in sub-questions which will be useful as a guide offered to students. The aim of the exam is to verify whether students well understand the theories and their applications, whether they are capable to explain them in clear language and to make examples. To verify reasoning and understanding of methods, theories and their meaning as refereed to reality is the main goal of the exam.
Upon an agreemnet between the teacher and the participants in the course (to be taken at two third of the course development) , and according to the level of active participation in the classes, an Exam Essay can be adopted as exam modality in substitution for parts of the written exam. In this case the teacher will provide a topic list to be developed in the exam Essays related to subjects illustrated during classes
SECS-P/02 - ECONOMIC POLICY - University credits: 6
Lessons: 42 hours
Professor: Sacconi Lorenzo