Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262704 
Year of Publication: 
2021
Series/Report no.: 
New Working Paper Series No. 302
Publisher: 
University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State, Chicago, IL
Abstract: 
We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies that generate externalities. We show that if the majority of investors are socially responsible, voice achieves the socially desirable outcome, while exit does not. If the majority of investors are purely selfish, exit is a more effective strategy, but neither strategy generally achieves the first best. We also show that individual incentives to join an exit strategy are not aligned with social incentives, and hence exit can lead to a worse outcome than if all individuals are purely selfish.
Subjects: 
Exit
Voice
Social Responsibility
Divestment
Boycott
Engagement
JEL: 
D02
D21
D23
D62
D64
H41
L21
Document Type: 
Working Paper

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