What Do Shareholders Want? Consumer Welfare and the Objective of the Firm
Management Science · Wed
Abstract
Shareholders want a firm’s objective function to place some weight on consumer welfare, motivated by both self-interest and altruism. Firms have a unique technology for improving consumer welfare: lowering inefficient price markups. Optimal pricing formulas can account for shareholders’ marginal rate of substitution between profits and consumer welfare. Calibrations show shareholders should place nontrivial weights on consumers. A survey experiment with a representative sample shows how shareholders would vote on resolutions giving strategic guidance to firms. Only 7% would vote for pure profit maximization. The median individual is indifferent between $0.44 in profits or $1 in consumer surplus. This paper was accepted by John Beshears, behavioral economics and decision analysis. Funding: This work was supported by Boston University (Impact Measurement and Allocation Program and Ravi K. Mehrotra Institute for Business, Markets, and Society). Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2025.00094 .
Keywords
shareholder welfare maximization, corporate social responsibility, ESG investing, shareholder governance, imperfect competition, optimal pricing
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