A Note on R&D Innovation with Socially Responsible Firms

Abstract This work revisits the R&D duopoly à la (d’Aspremont and Jacquemin, Am Econ Rev 78:1133–1137, 1988, d’Aspremont 80:641–642, 1990) (AJ henceforth) considering an economy with firms engaged in corporate social responsibility (CSR). In traditional AJ setting without spill-over effects, invest as a sub-game perfect Nash equilibrium (SPNE) strategy, but they are cast into prisoner’s dilemma. Socially responsible can get same SPNE result. Preliminarily, we show that level of firms’ concern has positive effect on investment. Unlike basic framework, however, if consumer welfare weights enough each firm’s objective, investing becomes utility-enhancing strategy also spillovers: dilemma vanishes, investment-decision game CSR turns out to be anti-prisoner’s dilemma, which is Pareto-efficient choice. Then, CSR-oriented, Pareto-superior outcome for society (with or spillovers). The article shows subsidies used welfare-maximising tool.