Social Preferences and Corporate Investment

This paper presents a unified framework to assess how social preferences—deontological, non-consequentialist, and consequentialist—impact corporate investment. While all preferences affect corporate technology choices when investors are strategic, only deontological and non-consequentialist preferences do so in a competitive equilibrium, assuming finite aggregate internalized harm. If technology supply changes have small risk-sharing effects, firms' investment decisions are highly elastic when social preferences change, with negligible effects on costs of capital. For plausible parameters, stochastic social harm makes brown firms more attractive to investors. Paradoxically, the presence of competitive consequentialist investors increases the supply of environmentally harmful firms in this case.