The Economics of Ethics Flashcards
(6 cards)
Fiduciary Responsibility and Freidman 1962
Definition; a person to whom property or power is entrusted for the benefit of another
HE (trump) has a fiduciary responsibility to his business, family, and employees to pay the least amount of tax possible
Social responsibility of business is profit maximisation
Freidman 1962
Perspective on the responsibility of business people
Maximise Profits; for all decisions, make choices that maximizes owners return on investment
Utalitarianism; a moral framework that aims to maximise overall utility across society, that is, the sum of individual utilities
Emphasis on profit maximisation
Not businesses responsibility
Redistribution and welfare
Taxes and welfare
Environment
Everything else
Because
For profit organisations have a fiduciary responsibility to maximise return on shareholder investment
Critiques
So long as it stays within the rules of the game - not breaking the law, excludes not getting caught or changing laws
Utalitarian; context matters
Free markets; shareholders can leave if they dont agree with financial management and priorities
Bean Counting
Corporate Social Responsibility
Good for business; porter, kramer, Bosh Budia
Attracts more motivated workers who care about issues and are incentives to work harder
Logical extensions more morally reprehensible
Bean counters; car manufacturers have two choices
Continue with existing technology to produce a car part with a probability of defect p which leads to a certain amount of accidents (FORD PINTO BAYBEEE). For each accident, damages amount to a cost of $C(P)
Improve technology at a cost of X and reduce the risk to r where r < p, and the new law suits cost of C(r) < C(p)
Both are within the rules of the game, $X = $C(r) > C(p), ergo, option a is more profitable despite deaths
According to Freidman and Utilitarian Framework, option a must be chosen → bean counter is lives lost
Asymmetric information / Adverse selection
Economic actors lack full imformation
Assymetrical Imformation; one person posseses more imformation and has more gains from trade, e.g. the market for lemons (sellers know more than buyers)
Process; ayysmetrical imformation, market contains good and bad items, price relflects average; sellers with good items will not enter and all that are left is bad (adverse selection)
Overcoming Assymetry
Nepotism, third party, warranty (lower risk, sign of quality), due dilligence, laws, branding
Imformation Unraveling
Full disclosure; sellers with good items incentivised to reveal value, second best will reveal as the best of the remaining, it isin best interest to reveal quality as to be differentiated from those worse than you, only the worse do not disclose.
Jin and Leslie 2003 - the effect of information on product quality; evidence from restaurant hygiene grade cards
Research question; does an increase in the provision of information to consumers about the quality of firms products cause forms to improve the quality of their products
Method; Natural experiment
The Los Angeles County Government passed an ordinance requiring restaurants to publicly display grade cards resulting from public hygiene health inspections
Data
The outcome of every restaurant health inspection in LA
Quarterly revenue for individual restaurants in Los Angeles County
The number of people admitted to hospital with food related and non-food related digestive disorders, in each month in each three-digit zip code
Results
Hygiene grade cards cause scores to increase by 5%
Prior to grade cards, revenue is insensitive to changes in hygiene scores. Post hygiene cards, an A grade correlates with a 5% higher revenue on average than a B grade
Grade cards caused a 20% decrease in foodborne illness hospitalisations
They also studied voluntary disclosure of hygiene ratings, finding that voluntary disclosure also led to improved hygiene scores
However these effects could be due to full disclosure or anticipatory impacts
Jin and Leslie 2003 - the effect of information on product quality; evidence from restaurant hygiene grade cards
Jin and Leslie 2003 - the effect of information on product quality; evidence from restaurant hygiene grade cards
Research question; does an increase in the provision of information to consumers about the quality of firms products cause forms to improve the quality of their products
Method; Natural experiment
The Los Angeles County Government passed an ordinance requiring restaurants to publicly display grade cards resulting from public hygiene health inspections
Data
The outcome of every restaurant health inspection in LA
Quarterly revenue for individual restaurants in Los Angeles County
The number of people admitted to hospital with food related and non-food related digestive disorders, in each month in each three-digit zip code
Results
Hygiene grade cards cause scores to increase by 5%
Prior to grade cards, revenue is insensitive to changes in hygiene scores. Post hygiene cards, an A grade correlates with a 5% higher revenue on average than a B grade
Grade cards caused a 20% decrease in foodborne illness hospitalisations
They also studied voluntary disclosure of hygiene ratings, finding that voluntary disclosure also led to improved hygiene scores
However these effects could be due to full disclosure or anticipatory impacts
Choice Paralysis
