EFFICIENCY and EFFECTIVENESS in SOCIAL ASSISTANCE USING CORPORATE SOCIAL RESPONSIBILITY and the ECONOMICS of TAGGING Cosmin Șerbănescu23 and Adrian Vintilescu24
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Romanian Journal of Political Science EFFICIENCY AND EFFECTIVENESS IN SOCIAL ASSISTANCE USING CORPORATE SOCIAL RESPONSIBILITY AND THE ECONOMICS OF TAGGING Cosmin Șerbănescu23 and Adrian Vintilescu24 Abstract The Mirrlees Fair tagging model described by Akerlof demonstrates that this concept leads to revenue redistribution efficiency, but implies difficulty in applying due to high administrative costs. Quantitative analysis of some redistribution process mechanisms which involves only indirect state intervention through corporate social responsibility (CSR) can be an effective optimal taxation leverage. In order to achieve this goal, the authors have described appropriate utility functions for actors involved in redistribution processes using CSR. The study considers the benefits for which companies could be open and interested in financing CSR programs that significantly minimize the social risks. The paper aims to quantify the impact of specific measures of corporate social responsibility in the economy and to determine the specific equilibrium conditions of this type of intervention. The study analyzes the demand and supply of a specific intervention area related to poverty programs and aggregates the results into a model that aims to determine the sensitivity of the CSR programs against certain parameters. The research also recommends the involvement of the private sector through charitable and philanthropic programs. The social and economic indicators have been analyzed using advanced statistical techniques (e.g. decision tree algorithm, regression, Monte Carlo analysis). The study generates a quantitative model for determining social risk based on community distinctive variables, to be acknowledged and used in carrying out specific CSR investments by capital decision makers. Key words: corporate social responsibility, efficiency and effectiveness of social assistance measures, data mining, capital income taxation, business ethics. JEL classification: A13, C23, H11, M14, E52. Introduction 23 Cosmin SERBANESCU, PhD., is the President of the Romanian National Internal Control Institute. His scientific research interests include internal control, continuous monitoring, compliance, risk management and corporate governance. E-mail: [email protected]. 24 Adrian VINTILESCU, PhD., is Senior Research Fellow at the Romanian National Internal Control Institute. His research interests include internal control, internal audit and risk management. E-mail: [email protected]. 91 Romanian Journal of Political Science The social programs represent the redistribution of revenues (public revenues in the social assistance programs and private revenues using the corporate social responsibility concept) toward individuals considered to be in need according to the public policies. A taxation and effective redistribution policy means an optimization between corporation's own business interests, respectively the capital on one hand and the social care on the other hand.Therefore, welfare programs financed by government and civil society are often looked at as a state's safety net by groups of persons having certain features and which are detected according to a predetermined selection process. The state and the corporations are responsible for funding and providing aid to assist persons in the failure of their own responsibilities, and create safety net premiums by taking money from other citizens or making investments using comprehensive social responsibility programs (Cox, D., 1987), (Mirrlees, J.A., 1971), (Castka, P., et al., 2005). The companies are more and more interested to get involved in the local development, creating strategies and building initiatives that promote the concept of social responsibility. Thereby, we believe it is very important to create a leverage to facilitate the access of companies to the optimal social responsibility level the community needs. The conjugation effect of increased spending on social assistance with other measures related to tax adjustments and with the development of the social responsibility may be offset by grant schemes of social assistance benefits compensatory role. Companies identify potential beneficiaries and intervention options using social responsibility based on information from various sources that do not provide, however, a complete knowledge. The main objective of the study is to develop a quantitative model to analyze the specific factors that influence corporate social responsibility in order to improve social programs. Achieving the objective implies the acceptance of restrictive assumptions that consist in defining the utility functions based on an econometric model from the community level. The authors considered as a case study Buzau county and used open data in order to define a quantitative model in which can be considered specific determinants in the CSR investment programs analysis. The model aims to identify the demand for CSR programs compared to the private companies offer and establishing a balance between supply and demand. In the creation of the model were determined some parameters by quantitative research and for other indicators were defined probability distributions which allow a sensitivity analysis that can be replicated later in other areas or domains. The first part of the study analyzes the request for assistance given by social needs. To determine the specifications of the CSR request function, the authors used a data mining model, classification trees and multivariate regression for a specific assumption - poverty. The model provides the possibility to quantify the sensitivity of the request in relation to other factors, considered as independent variables. In the second part in order to analyze the CSR offer, the authors analyzed 92 Romanian Journal of Political Science the motivations of the companies to be involved in and alocate capital to CSR projects. In this regard the authors defined a quantitative model based on the analysis of pure and impure altruism which allows the aggregation of the two components resulting in the output of the model that is given by the probability that a company will be involved in CSR programs in a certain context. In simple terms, the aggregation responds to a question that any investor or public policy maker poses himself: If I invest a certain amount of money in CSR what would be the benefits? The paper also provides concrete tools for speeding the information flows and reducing moral hazard in streamlining the CSR processes. That is why the model aggregates the impure altruism component that belongs to the corporation itself and the pure altruism that reflects the awareness of the intervention's effect in CSR derived from a sensitivity analysis according to the net present value model. Hence, the first part of the study, which analyses the pure altruism component, aims to present an algorithm to create social assistance risk profiles (utility function for social assistance), using advanced statistical techniques (e.g. decision tree algorithm, general linearized model, regression), profiles that could subsequently be used by organizations that exhibit a potential interest in the development of corporate social responsibility programs. This component of the study actually develops a risk map at a county level, evaluating specific output variables of social assistance, on the basis of input variables specific to communities. By analyzing the statistical study results, it was found out that the main factor for poverty risk is the unemployment rate (with an importance percentage of approximately 60%), which is followed by the percentage of Roma ethnicity, difficulty in reaching the city, the percentage of children in the family and the percentage of social workers in the administrative territorial unit. The second part of the study, to determine the impure altruism component, considers the benefits for which companies could be open and interested to finance CSR programs that minimize the social risks. In this regard, the authors defined a model of extensive analysis of factors related to the economic efficiency that also included charitable and philanthropic actions which can be performed by private companies. The inclusion of theoretical concepts of investment analysis, selflessness and pure and impure altruism in developing the model (the utility function of the corporation), allowed the analysis of the sensitivity involvement of companies (using the Monte Carlo simulation) with regard to altering some social indicators. Furthermore, the study generates a quantitative model for determining social risk based on community distinctive variables, to be acknowledged and used in carrying out specific CSR investments by capital decision makers. 93 Romanian Journal of Political Science Literature review Since the 1960s, corporate social responsibility has attracted attention from a broad range of businesses and stakeholders. In the 1970s business managers applied the traditional management functions when dealing with CSR issues, while, in the 1980s, business and social interest came closer and companies became more responsive to their stakeholders. During the 1990s the idea of CSR became almost universally approved. Also CSR was coupled with strategy literature and finally, in the 2000s, CSR became definitively an important strategic issue. Regarding the evolution of the CSR concept in the European Union (EU), we note that in 1995 the EU drafted the European Business Manifesto Against Social Exclusion, when