NCPA - National Center for Policy Analysis


May 13, 2008

For corporations, social responsibility has become a big business, says Remi Trudel, a doctoral candidate, and June Cotte, a professor at the University of Western Ontario.  Companies spend billions of dollars doing good works -- everything from boosting diversity in their ranks to developing eco-friendly technology -- and then trumpeting those efforts to the public.

Consumers were willing to pay a slight premium for the ethically made goods according to research by Trudel and Cotte.  But consumers would buy unethically made products only at a steep discount.

People were asked to rate how much they would spend on a products from different companies.  But before they answered, they were asked to read some information about the company's production standards:

  • One group got positive ethical information, and one group negative; the control group got neutral information, similar to what shoppers would typically know in a store.
  • After reading about the company and its coffee, the people told the price they were willing to pay on an 11-point scale, from $5 to $15.
  • The mean price for the ethical group ($9.71 per pound) was significantly higher than that of the control group ($8.31) or the unethical group ($5.89).

Meanwhile, as the numbers show, the unethical group was demanding to pay significantly less for the product than the control group:

  • In fact, the unethical group punished the coffee company's bad behavior more than the ethical group rewarded its good behavior.
  • The unethical group's mean price was $2.42 below the control group's, while the ethical group's mean price was $1.40 above.
  • So, negative information had almost twice the impact of positive information on the participants' willingness to pay.

For companies, the implications of this study -- albeit limited -- are apparent.  Efforts to move toward ethical production, and promote that behavior, appear to be a wise investment.

Source: Remi Trudel and June Cotte, "Does Being Ethical Pay?" Wall Street Journal, May 12, 2008.

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