1. Lecture 6 – ECON.S-1620 Prof. Charles Moran Copyright 2015 1 Behavioral Theory of the Firm & Ethics Lecture 5

2. Lecture 6 – ECON.S-1620 Prof. Charles Moran Copyright 2015 2 Behavior Theory of Firm Firm is a coalition of participants Does not assume that the firm has a single objective Assumes there is a cost to transmit information Assumes that human decision makers are boundedly rational

3. Lecture 6 – ECON.S-1620 Prof. Charles Moran Copyright 2015 3 Behavior Theory of Firm (cont’d) Consider – Coalition implies a common objective and reason to come together and stay together (Goals - Values) Firm is made up of many individuals and multiple activities –To keep these together may require complex – comprehensive objectives Information is not given freely Humans will act in self interest –Firm must exploit this

4. Lecture 6 – ECON.S-1620 Prof. Charles Moran Copyright 2015 4 Toward a Unified Conception of Business Ethics – Group 3 Ethics is grounded in philosophical and moral concepts – fundamental respect for state sovereignty, human rights and peaceful dispute settlement (But different meanings in different cultures) Are universal ethics compatible with religious traditions and national sovereignty? The U.S. double standard! –Environmental issues in developing economies –Ban on personnel land mines

5. Lecture 6 – ECON.S-1620 Prof. Charles Moran Copyright 2015 5 Ethics (cont’d) Organizations Have a Purpose: Religious organizations Political organizations Economic organizations (corporations) But: Should these organizations pursue their objectives by all means, regardless of legal or ethical considerations? If no – Then why does history include religious wars, ethic cleansing, imperialism and monopolies/cartels?

6. Lecture 6 – ECON.S-1620 Prof. Charles Moran Copyright 2015 6 Ethics (cont’d) What role can economic theory play in resolving ethical dilemma? Can/will organizations rise above their objectives to meet ethical standards of behavior without incentives? Can ethical behavior be legislated? Incented? Consider ethical problems of multinational managers: Giving/accepting gifts and entertainment Fees to “Do Business” [bribe or facilitator] Predatory negotiation Practices Compensating employees, not with currency (discretionary spending) But in kind – housing, benefits, other direct benefits – That control or limit individual choice and may give employer control over employee.

7. Lecture 6 – ECON.S-1620 Prof. Charles Moran Copyright 2015 7 Ecocentric Management – Group 4 Co-alignment of organization with its environment Organizations mot innocent systems of production – but systems systematically destroying environmental value Management responsibility for ecology? (sustainable environment) pg 285 (Tree Hugger or Pragmatism) - Shrivastana Shareholder value Design product for function, style and price Production-energy and resource intensive Organization hierarchical high income differential Dominate environment Influence market cost/benefit rules Shareholder welfare Design for environment Environmental efficiency, low energy and resource use Non-hierarchical low income differential Harmony with nature Account for social/environmental costs – well being of consumer/employee