Purpose, profit and social pressure

Fenghua Song, Anjan Thakor, Robert Quinn

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We develop a model in which there are firms and employees who care about profit-sacrificing higher purpose (HP) and those who do not. Firms and employees search for each other in the labor market. Each firm chooses its HP investment. When there is no social pressure on firms to adopt a purpose, HP dissipates agency frictions, lowers wage costs, yet elicits higher employee effort in firms that intrinsically value the purpose. However, social pressure to invest in HP can distort the HP investments of all firms and reduce welfare by making all agents worse off. Applications of these results to banking are discussed.

Original languageEnglish (US)
Article number101031
JournalJournal of Financial Intermediation
Volume55
DOIs
StatePublished - Jul 2023

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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