Ethical Behavior and Economics

Synonyms

Consumer sovereignty; Decision-making environment; Economics; Ethics; Nudging; Theory; X-inefficiency

Introduction

A fundamentally important assumption in conventional or neoclassical economics is that being ethical is most likely to be harmful to the economy. It can make firms and the larger economy less competitive and it can drive down share value, damaging the position of investors. Reference here is made only to the owners of the traditional investor-owned firms. No mention, however, is provided of alternative forms of organizations such as cooperatives (member-owned organizations) and state-owned entities or social enterprises. Here too the argument is made that being ethical comes at cost to the firm and to many members of the firm. Moreover, ethical behavior invariably results in more unemployment and higher costs to consumers, resulting in a lower standard of living. But this point is also adhered to by critics of market economies and, more specifically, to critics of...