We develop a theory of how the intersection of business goals and the pursuit of ?higher purpose?? something that produces a non-pecuniary social benefit valued by the principal and the agent ? affects economic outcomes. Two types of principals ? those pursuing only wealth maximization and those pursuing both wealth and a higher purpose ? are considered.
These are typically viewed as competing approaches to running organizations. However, the theory we develop, which shows that the pursuit of higher-purpose projects reduces labor costs and increases capital investments, highlights a potential complementarity between the principals pursuing a higher purpose and those exclusively pursuing wealth. The complementarity arises because the pursuit of higher-purpose projects by others can relax budget constraints for wealth-maximizing principals, and the presence of purely-wealth maximizing principals may be essential for the higher-purpose-pursuing principals to obtain external financing. The absence of either type of principal may lead to a market breakdown involving no projects being undertaken.
We examine the role of corporate taxation and institutional quality in aligning privately optimal investments with those that are socially optimal. We...
We present a model in which firms compete for workers who have a taste for a nonpecuniary job attribute, such as purpose, sustainability, ES/CSR, or...