A Model of Signaling Quality in Supply Chains by Corporate Social Responsibility

This paper studies a supply chain consisting of an upstream supplier, a downstream retailer and final consumers. The supplier owns privately the information on the product quality level and signals it by CSR strategy. Under this quality information asymmetry, in order to examine the role of CSR on signaling the quality level, we build a signaling model to capture how the supplier indirectly share the quality information by its CSR strategy, and characterize the separate equilibriums. The equilibrium results show that under some technical conditions, a high enough CSR level signals a high quality level in the sense of a separate equilibrium, which provides supply chain managers with an implication on choosing a direct or an indirect way to sharing information conditional on a known cost of direct information sharing.