Welfare

Finance

Business

Outcome (game theory)

Artificial intelligence

Externality

Economics

Microeconomics

Political science

Divestment

Contrast (vision)

Boycott

Market economy

Computer science

Monetary economics

Politics

Journal of Political Economy

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.

Exit versus Voice