Stakeholder relationships and social welfare: a behavioral theory of contributions to joint value creation

Firms play a crucial role in furthering social welfare through their ability to foster stakeholders’ contributions to joint value creation, i.e., value creation that involves a public-good dilemma due to high task and outcome interdependence - leading to what economists have labeled the ‘team production problem’. We build on relational models theory to examine how individual stakeholders’ contributions to joint value creation are shaped by stakeholders’ mental representations of their relationships with the other participants in value creation, and how these mental representations are affected by the perceived behavior of the firm. Stakeholder theory typically contrasts a broadly-defined ‘relational’ approach to stakeholder management with a ‘transactional’ approach based on the price mechanism - and has argued that the former is more likely to contribute to social welfare than the latter. Our theory supports this prediction for joint value creation, but also implies that the dichotomy on which it is based is too coarse-grained: there are three distinct ways to trigger higher contributions to joint value creation than through a ‘transactional’ approach. Our theory also helps explain the tendency for firms and their stakeholders to converge on ‘transactional’ relationships, despite their relative inefficiency in the context of joint value creation.