RIEB Discussion Paper Series No.2021-20

RIEB Discussion Paper Series No.2021-20


Socially Responsible Investment: Ex-ante Contracting or Ex-post Bargaining


This paper shows how a socially and environmentally aware firm principal can motivate a profit-oriented manager to pursue environmental, social and governance (ESG) outcomes. In the model, the manager produces a verifiable output that is detrimental to ESG, but also engages in an unverifiable output that promotes ESG. I show that an ex-post bargaining contract is preferred to an ex-ante commitment contract if the unverifiable output substantially improves ESG or if there is a large negative externality. The paper also demonstrates how social impact bonds can be more effective than short-term debt to finance social programs.


Socially responsible investment; ESG; Multitask; Hold-up; Incomplete contracts; Social impact bonds; Sustainability-linked bonds.

JEL Classification

D86, G11, G23, M12, M14


An old version of this paper is available from this link


Junior Research Fellow, Research Institute for Economics & Business Administration, Kobe University
Faculty of Business Administration and Accountancy, Khon Kaen University
E-mail: megasato@diamond.kobe-u.ac.jp.