business ethics
VincentL
MarketApproachtoBusinessEthics.pptxThe MARKET APPROACH to Business Ethics
CORE QUESTION: Is capitalism and the market humane?
Friedman – The Market Approach
Ford and the Pinto Automobile
Friedman – The Market Approach
Responsibility of the Poor
The Market Perspective
Ethical decisions are the same as business decisions.
Conditions of scarcity (Land, labor, capital, entrepreneurial ability)
Purposeful behavior
Maximize utility
Maximize rationality
THE MARKET WILL FIX THINGS and ADDRESS ISSUES THAT ARE WORTH BEING ADDRESSED – They must be cared about.
The Diamond Dilemma
$100.00
Cubic Zirconia
$10,790
VVS1 Excellent Cut
Asymmetric Information (Adverse Selection) [1970]
High Quality $10,000
Lower Quality $6,000
Average Price: $8,000
High Quality Seller Leaves
Low Quality Seller stays in
Average Price decreases
Lower Quality Sellers move in
Average Price decreases further
Asymmetric Information (Adverse Selection)
High Quality $10,000
Lower Quality $6,000
Average Price: $8,000
High Quality Seller Leaves
Low Quality Seller stays in
Average Price decreases
Lower Quality Sellers move in
Average Price decreases further
Asymmetric Information (Adverse Selection)
High Quality $10,000
Lower Quality $6,000
Average Price: $8,000
MARKET FAILS IN THE SHORT RUN
Options:
WAIT FOR THE MARKET SOLUTION TO
DEVELOP – WHEN THE NEED IS THERE
GOVERNMENT
CREATES LAWS
LEMON LAW – STATE CREATED
Founded: 1984
How will the system promote progress?
Joseph
Schumpeter
CREATIVE DESTRUCTION
CREATIVE DESTRUCTION
ENORMOUS MARKET
At what price will the goods and services in a capital market sell?
Least cost production
per unit of output
Who will get the goods and services?
Those with the ability and
willingness to pay for them
How will change occur?
via Price
This concludes with the “Invisible Hand of the Market”?
Invisible hand of the market?
…but its much more than addressing demand….
Does the Market promote Virtue (behavior showing high moral standards]?
Virtues of the Market [Macro View]
Efficiency – promotes efficient use of goods most wanted by society
Incentives – encourages skill acquisition, hard work and innovation
Freedom – emphasizes personal freedom of choices
Virtues of Market Participants [Micro]
Thrift
Hard Work
Responsibility
Prudence
Honesty
Sociability
When does the market work optimally?
The Most Ethical and Efficient Market (PARETO EFFICIENT)
perfect competition
When price includes all costs
When information is equal between parties
What happens when the three conditions are not met?
Monopoly Markets
No efficiency
No incentive
No freedom
Removes the push for thrift, hard work, responsibility, prudence, honesty and sociability
Price does not include all costs
Short Term Solution - Government Intervention
Anti-trust action for the Monopoly
Increase in taxes and regulatory charges for negative externalities
Mandatory disclosures – Regulation Fair Disclosure (Lemon Example)
In the short term – what happens when people are being taken advantage of…or the market has not provided a solution?
Options:
WAIT FOR THE MARKET SOLUTION TO
DEVELOP – WHEN THE NEED IS THERE
GOVERNMENT
CREATES LAWS
LEMON LAW – STATE CREATED
Founded: 1984
Gas Gauging – Short Term [example]
The Market Approach is a LONG TERM Approach What about the SHORT TERM?
QUESTIONS?
