Business Ethics and Corporate Social Responsibility (CSR) are a subject of very great present interest. Business ethics is not a special set of ethics, it is normal ethics applied to business and business situations. CSR is a firm’s contribution to the society; it can be anything from helping the poor to reducing CO2 emissions.
The questions I try to look closer to in this thesis are the following: If the cost of CSR exceeds the profit it generates to the firm, will CSR be able to survive in the market economy? If CSR survives, is it efficient to the society as a whole?
I start in chapter one by defining Business Ethics and CSR, and introducing the debate around CSR. Some economists like Friedman and Shleifer are sceptical to CSR. They argue that CSR is a cost to the firm and will make a firm less competitive. While others like Porter and Kramer argue that CSR can help increase the competitiveness of a firm and chosen right CSR increase the profit of the business. In chapter two I look at ethical pressure from NGOs, activists and the government in a competitive market and chose to elaborate one example of unethical behaviour: Child labour. Chapter three is my simple economic illustration, in the first part I assume that the ethical standard is absolute and in the second part I assume that it is variable. My simple model shows that when an ethical standard is imposed the companies that can not bear this cost will go bankrupt. Sometimes the society’s punishment is not equal to all firms and can be either smaller or bigger than the cost of implementing the ethical standard. In this case, the results may be socially inefficient because some firms will be able to survive despite that their income is inferior to the cost of ethics and others will not survive despite that their income is greater than the income of the ones surviving. The model also shows a correlation between high moral standard and productivity but this should not be misinterpreted. A moral standard is a cost to the firm, but the correlation is due to the fact that productive firms can bear higher ethical cost. The conclusion is presented in chapter four.