Social preferences and corporate investment

This paper presents a framework to study how investors’ social concerns affect technology choices. Consequentialist preferences (disutility from aggregate harm) influence outcomes only if investors coordinate, unless internalized harm is independent of an investor's mass. Non-consequentialist preferences (disutility from stockholdings) affect outcomes regardless of coordination. Both preferences have stronger impact when risk-sharing consequences of technology supply are small (e.g., highly correlated returns), and their effects cannot be inferred from cost-of-capital differences. When harm is stochastic, polluting firms may appear less risky to social investors. Depending on type and strength of social preferences, this can support or hinder the green transition.