Lecture 3: Responsibility of Leaders II: MFA and Making everyone Better off Flashcards
What is MFA?
The market failure approach fills in the gap between the shareholder and stakeholder approaches.
How can you increase profit without exploiting market failures? Name the dos and don’ts.
Do:
- Product innovation
- Improvement in quality
- Cost reduction
Don’t:
- Withhold information
- Produce negative externalities
- Lobby against regulator efforts
What does MFA assume?
It assumes that the closer we get to a perfect market, the closer we will get to perfect efficiency.
Why is the assumption of MFA not always true?
It isn’t true that we always gain efficiency as we move closer to a perfect market.
What does utilitarianism mean?
Do what maximizes wellbeing.
What is the conclusion of the MFA argument?
Managers ought to maximize profits without exploiting market failures.
What is the difference between act utilitarianism and rule utilitarianism? And give an example
Act utilitarianism = In any given situation you should choose the action that produces the greatest good for the greatest number. (Kill a person to provide organs to 5 people)
Rule utilitarianism = We ought to live by rules that, in general, are likely to lead to the greatest good for the greatest number (Don’t kill a person to provide organs, because then, in the long run, everybody would fear of being killed for their organs)
What is the argument for MFA?
1) An efficient economy increases welfare.
2) Profit-seeking behavior under perfect market conditions leads to an efficient economy.
3) Therefore, profit-seeking behavior is good when and because it leads to an efficient economy.
4) Profit-seeking that exploits market failure behavior does not lead to an efficient economy.
5) Therefore, managers and business owners ought to maximize profits without exploiting market failures.
What does Joseph Heath say about efficiency?
Efficiency is instrumentally not intrinsically valuable. What matter is human needs.
What is the first system in the two-system argument? And what does it tell us?
“Business” should focus on efficiency: they increase the size of the pie.
What is the second system in the two-system argument? And what does it tell us?
“Government” should redistribute to create a just distribution.
The two systems helps …?
Satisfy human needs
What are the problems of the two systems argument?
1) Justice failures
2) National Boundaries
3) Money can’t buy everything
