What Do Shareholders Want? Consumer Welfare and the Objective of the Firm

Shareholders want a firm’s objective function to place some weight on consumer welfare, motivated by both self-interest and altruism. Firms have a unique technology for improving consumer welfare: lowering inefficient price markups. Optimal pricing formulas can account for shareholders’ marginal rate of substitution between profits and consumer welfare. Calibrations show shareholders should place non-trivial weights on consumers. A survey experiment with a representative sample shows how shareholders would vote on resolutions giving strategic guidance to firms. Only 7% would vote for pure profit maximization. The median individual is indifferent between $0.44 in profits or $1 in consumer surplus.