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Markets and how they pertain to Ethics

One easy, laissez-faire way of handling ethics is to let the market handle them– if something wins in the market, it is ethical and if something does not it is not. As a way of discerning ethical outcomes, it is particularly attractive for business people working within the market because to be ethical we just need to let the market decide. This is a very simple version of utilitarianism


Are Markets good or bad?

The ends of the continuum are well-represented in popular media: Markets are always evil and accomplish nothing good. Free markets are the ultimate good and can accomplish everything humans need.


What was life like before Markets?

You had a lord. The lord had lots of money, people worked for the lord. the lord gave them money.


Market Model

Model applies to all markets--markets for durable goods,

markets for services, and markets for ethical outcomes


Within the theory: How does this process lead to the most ethical outcome?


If most people care about something, then they will be willing to pay (in time, money, etc.) for it, and it will happen.


Market Assumptions


Full Information

In order for the market to work, most players need full information about the components of the item they are valuing:

Utility = f(Bn(xn)) where B is the subutility and x is the attribute value.

If the information is missing, it will be left out of the market valuation.


What does it mean to have full information?

The strict (impossible) definition
The more liberal definition

Ethical values and the availability/cost of information.
Willful nondisclosure
Bad marketing of ethical issues (imposing cost)
Time/money sinks
Confusing science…
Truly missing information


Willful Nondisclosure

recent examples of people buying and selling goods without any idea what they were getting?
repercussions from this lack of information…


Marketing of Ethical Information: What are the Costs of obtaining the information?

Potential costs: money, time, aggravation


Market Theory of Ethics


Everyone Particpates in the Market

Problem 1

lack of competition

Sherman antitrust act (1890)
Opec/retail oil
British Airways/Virgin Airways fuel
Examples of monopolies/ogliopolies?


Everyone Participates in the Market

Problem 2


Sometimes, the people affected by a decision are not part of the negotiation at all.
What are some solutions to the externality problem?

there are many participants in the world who do not participate in the market

There are values outside of the pricing mechanism of the market (or at least very difficult to price)
Sometimes these values are called “existence values” (as opposed to “use values”)


People Potentially Left out

Children, those with disabilities, etremely poor, sweatshop workers


Others left out

The environment, animals


Market Value for Objects

Art and architecture can be priceless. 


Market Theory of utilitarianism

The market theory of utilitarianism gives every dollar one vote. 
Thus, the aggregation process leads to the maximum profit, and maximum profit is equated to maximum utility for society.
Does this work? not all the time. 


Public Goods

Nonrival (which means no competition)
Nonexclusionary (which means no incentive to compete/pay/reveal true demand)
Thus, lots of free riding
It is difficult to develop an incentive-compatible system for pricing public goods.



Rights and Justice in the Market

The market is an expression of utilitarianism.
Where do rights and justice fit in a market system?
Two economists in 1992 proposed that slavery was bad from a market perspective because of “uncompensated third party effects.”
Is that why it is wrong?
Can we envision some
trades being “off-limits?”



Within an economic system, there is plenty of room for ethical values to be expressed: markets are expressions of utilitarianism, after all.
Markets are much better ways of allocating resources than many (all?) of the other mechanisms devised by humans thus far.
However, the market system is not perfect at producing the most ethical outcome.
When the assumptions of the system are violated, the best outcome is unlikely to occur.
Likewise, when outcomes are outside of any obvious pricing system, the best outcome is unlikely to occur.
“The market will take care of everything” is naïve, even within the assumptions of economics.