, Volume 8, Issue 11, pp 841-845

The ethics of insider trading

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Despite the fact that a number of economists and philosophers of late defend insider trading both as a viable and useful practice in a free market and as not immoral, I shall question the value of insider trading both from a moral and an economic point of view. I shall argue that insider trading both in its present illegal form and as a legalized market mechanism undermines the efficient and proper functioning of a free market, thereby bringing into question its own raison d'etre. It does so and is economically inefficient for the very reason that it is immoral. Thus this practice cannot be justified either from an economic or a moral point of view.

Insider trading is the reverse of speculation. It is reward without risk, wealth generated — and injury done to others — by an unfair advantage in information ... [T]he core principle is clear: no one should profit from exploitation of important information not available to the public.

Patricia H. Werhane is Wirtenberger Professor of Philosophy at Loyola University of Chicago. She is one of the founding members of the Society for Business Ethics. Her publications include Philosophical Issues in Art, Ethical Issues in Business, coedited with Tom Donaldson, Persons, Rights and Corporations, Philosophical Issues in Human Rights, edited with D. Ozar and A. R. Gini. She is currently working on a book on Adam Smith.