Abstract

R A Brealey and E C Kaplanis* The welfare effects of a boycott on investment in South African securities Introduction sanctions nor does it do the reverse. Its sole and limited pur­ pose is to analyse the economic consequences of such In response to the demand for economic sanctions against sanctions. South Africa, a number of investment institutions have divested from the stocks of firms doing business in South Africa. The Motives for Boycott The term 'doing business' is subject to varying interpretations. There are at least two possible motives for boycotting these­ At its narrowest, divestment may be limited to the stocks of curities of a country of whose policies one disapproves. The South African firms. However, a manager who decides to ex­ most obvious purpose would be to influence the country's ac­ clude any firms investing in South Africa would significantly tions by causing hardship to its citizens and supporters. In this reduce the universe of eligible stocks. For example, two years case an efficient boycott would presumably be one that im­ Standard ago 40 per cent of the market capitalisation of the poses the maximum welfare loss on the boycotted at a mini­ and Poor's stocks