Social Preferences and Corporate Investment

This paper develops a unified framework to analyze how different types of social preferences -- deontological, non-consequentialist, and consequentialist -- affect corporate investment. While all preferences influence corporate technology choices when social investors are strategic, only the former two have an effect in a competitive equilibrium, as long as the aggregate internalized social harm remains finite. We also shed new light on the effectiveness of social investors’ portfolio strategies. The results depend crucially on how technology choices are endogenized. The cost of capital wedge due to social preferences is not a relevant measure to evaluate the magnitude of their effects.