November, 2017

Polycentric Stakeholder Analysis

Corporate Governance and CSR under Value Heterogeneity
  • Paul Dragos Aligica

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
  • Vlad Tarko

    Assistant Professor of Economics, Dickinson College
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This paper presents a method of stakeholder analysis based on recent developments in the theory of polycentricity and co-production. A polycentric system of governance is a collection of heterogeneous decision centers acting independently, but under a common system of rules and/or norms limiting negative externalities and free riding, and the theory of co-production describes how the different stakeholders are involved in establishing these over-arching rules. We use this theory to model the interactions between different stakeholders of a corporation and the corporate management, providing a new perspective on the broad business case for corporate social responsibility (CSR). The Polycentric Stakeholder Analysis (PSA) framework accommodates stakeholders’ heterogeneity of preferences, beliefs and values, and the complex nestedness of stakeholders’ governance systems; it is realistic in capturing the imperfect rationality, limited information and potentially opportunistic behavior, while also preserving the key elements of the normative democratic ethos that drives CSR more broadly. We show how CSR managers can determine who the salient stakeholders are, without adopting unrealistic homogenizing assumptions about "hypernorms" or "integrative social contracts," and we provide a simple public economics model, inspired by the calculus of consent, showing how to allocate CSR resources efficiently.