Supply chain transparency and social responsibility : investigating consumer and firm perspectives

Abstract

Consumers increasingly expect companies to ensure that their products are made in a socially responsible manner. However, most companies do not have good visibility into their supply chains. According to a recent study, 81% of the 1,700 companies surveyed lacked full visibility into the social responsibility practices of their suppliers. Using incentivized laboratory experiments and a game-theoretic model, in this thesis we study how improved transparency about social responsibility practices in the supply chain can positively impact companies' interactions with both consumers and suppliers. In the first part of this thesis, we design an incentivized laboratory experiment to study two key questions: (i) How does visibility impact consumers' valuations of social responsibility practices in a supply chain? (ii) What roles do indirect reciprocity and prosociality play in affecting consumers' valuations under different levels of visibility? Our results demonstrate that consumers are willing to pay more for greater visibility. Also, high prosocial consumers do not exhibit indirect reciprocity. Conversely, indirect reciprocity increases low prosocial consumers' valuations under high visibility. In the second part, we study how a manufacturer can improve a supplier's social responsibility practices under incomplete visibility. We consider a game-theoretic model with information asymmetry about the supplier's practices and focus on the manufacturer's investment in the supplier's capabilities. We also consider the potential disclosure of social responsibility information to consumers by the manufacturer or a third party. We find that the manufacturer should invest a high (low) amount of resources in the supplier's capabilities if the information it observes suggests poor (good) practices. Greater visibility helps the manufacturer be more efficient with this investment. The disclosure of social responsibility information by the manufacturer leads to better supplier's practices. Finally, we conduct an incentivized laboratory experiment to investigate (i) how does visibility affect consumers' trust in companies' communications? (ii) How does visibility impact the effect that trust has on consumers' willingness-to-pay for products? Our results show that the effect of visibility on trust is highly dependent on consumers' prosociality. In particular, only low prosocial consumers trust companies more when they demonstrate greater visibility - and this translates into a greater willingness-to-pay.