318 / 2024-04-24 13:25:06

Asymmetric Information in Corporate Social Responsibility Incentive: Does First-Mover Advantage Always Work?

Social responsibility (SR) contracting,First-mover right,SR improvement,Inspections,Information asymmetry

A supplier's failure to abide by social and environmental standards will expose the buyer to goodwill loss. Relevant existing research tends to default to supply chains in which information is transparent and buyer auditing is perfect. In contrast, this paper investigates social responsibility (SR) incentives in supply chains in the context of asymmetric buyer inspection capabilities. As for SR incentives, powerful firms usually make SR requirements to their suppliers to avoid reputation risks, some other firms may allow their suppliers to decide SR level first and then make orders. These two ways are studied in this paper where the former is SR-R strategy and the latter is SR-P strategy. We find that the buyer's exercise of leadership rights to relinquish first-mover rights leads to better results in this SR problem, where making requirement (SR-R) limits the supplier’s efforts, but letting the supplier decide first (SR-P) gives full incentives in improving SR level and also benefits to buyer’s profit. In addition, the strength of external inspection has a distinct impact on the buyer's decision of contract strategy and decision to disclose information. When buyer chooses not to disclose her inspection capabilities, owing to the interaction between information asymmetry and external inspection pressures, the choice of the SR-P strategy may even lead to a performance that surpasses the first-best.