 BUS 430 Summer 2013 Dr. Rajiv Krishnan Kozhikode

 Critical reflection report 1  Critical reflection report 2  Comparative Business Ethics

o What are the characteristics of the unofficial economy Business activities not registered Do not to pay taxes But cannot claim benefits from any publicly provided services (e.g., legal enforcement of contracts) o How does it affect the official economy Lesser revenues from taxes Lesser supply of publicly provided services Decreased incentive for firms to operate in the official economy Hence, a downward spiral

 Regulation and Bureaucracy  Taxation  Rule of Law & Corruption

 Unofficial economy is bigger in countries where 1) Regulation is not business-friendly (i.e., too much regulations) 2) Regulatory discretion is high (i.e., enforcement of rules is lax) 3) Quality of bureaucracy is poor (i.e., inefficient and unpredictable) 4) Economic freedom is lesser (i.e., poorly regulated)  But overall economic development limits some of these effects.

 Unofficial economy is bigger in countries where 1. Tax burden is higher i.e., officials abuse tax payers Unclear tax guidelines 2. Level of taxation is lower (tax havens) Low tax rates is not essentially good for the official economy

 Unofficial economy is bigger in countries where 1. Law and order tradition is not strong (no body respects the law) 2. Protection of property rights is not ensured (i.e., expropriation concerns) 3. Legal system is biased (i.e., discriminatory enforcement of law) 4. Corruption practices are rampant (i.e., it is everywhere) 5. Bribery is normative (i.e., it is a widely accepted practice)

 Does your culture make you corrupt? o i.e., controlling for institutional and economic characteristics, can culture explain a person’s intrinsic motivation to give and take bribes? o The answer is yes, but some people may differ.  How do we know this? o Field experiments by Fisman & Miguels (2007): Parking violations by diplomats in NYC Home country’s corruption level predicted diplomat’s parking violation o Controlled bribing experiment in lab by Barr & Serra, 2010 Experiment of multi cultural student sample Bribe given by private individuals to government officials

 Home country’s corruption levels predicted an individual’s tendency to take and receive bribe  But when the individuals are in the new country out of personal choice (presumably due to their preference to its anti-corruption institutional characteristics), they tend to avoid corruption even when their home country is corrupt.  These individuals can perhaps act as agents of change

 Next session we will have our second factbook workshops  Consider this a 5 minute pitch to investors to employ you as their country analyst.  Try to come up with a framework for your factbook o Think of a good, meaningful title o Be prepared with the motivation for your choice of industry o Identify points of comparison Use information from each session to structure your comparison Identify the most relevant sessions for your industry Identify how information about each topic relates to the overall report o Identify relevant sources of data o Discuss how you will use it o Tell us what the investor could expect from your factbook