Exit versus Voice

Eleonora Broccardo; Oliver Hart; Luigi Zingales

doi:10.1086/720516

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Journal of Political Economy Vol. 130 No. 12 2022

Exit versus Voice

Eleonora Broccardo¹; Oliver Hart²; Luigi Zingales³

¹ University of Trento · ² Harvard University Press · ³ University of Chicago

Abstract

We study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in a world where companies generate externalities and some agents care about the social impact of their decisions. We show that if the majority of investors are even slightly socially responsible, voice achieves the socially optimal outcome. In contrast, exit does not unless everybody is significantly socially responsible. 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 exit can sometimes reduce social welfare.

DOI: 10.1086/720516
Volume: 130
Issue: 12
Pages: 3101-3145
Language: en
Sources: crossref bibtex:phds-export.bib openalex

Exit versus Voice

Abstract

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