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The Dynamics of Business Ethics and Economic Activity

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  • Noe, Thomas H
  • Rebello, Michael J

Abstract

The authors model the agency relationship between managers and investors. Through socialization, ethical managers develop internalized norms that prevent them from acting opportunistically. Unethical managers lack these norms. Higher ethical standards on the part of managers increase economic activity in the short run. However, increased economic activity increases opportunities to profit from unethical behavior, eroding ethical standards over the long run. When this rate of erosion is high, cycling of ethics and economic activity emerges. Otherwise, ethics and economic activity converge to a stable long-run limiting value. Copyright 1994 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 84 (1994)
Issue (Month): 3 (June)
Pages: 531-47

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Handle: RePEc:aea:aecrev:v:84:y:1994:i:3:p:531-47

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Cited by:
  1. Jiong Gong & Preston McAfee & Michael A Williams, 2011. "Fraud Cycles," Levine's Working Paper Archive 661465000000001154, David K. Levine.
    • Gong, Jiong & McAfee, R. Preston & Williams, Michael, 2011. "Fraud cycles," MPRA Paper 28934, University Library of Munich, Germany.
  2. Patricia Crifo & Hind Sami, 2011. "Incentives for Accuracy in Analyst Research," Working Papers hal-00561929, HAL.
  3. Hussey, Andrew, 2011. "The effect of ethics on labor market success: Evidence from MBAs," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 168-180.
  4. Carlin, Bruce Ian & Dorobantu, Florin & Viswanathan, S., 2009. "Public trust, the law, and financial investment," Journal of Financial Economics, Elsevier, vol. 92(3), pages 321-341, June.
  5. Francois, P. & Zabojnik, J., 2001. "Culture and Development: An Analytical Framework," Discussion Paper 2001-25, Tilburg University, Center for Economic Research.
  6. Kim, Moshe & Surroca, Jordi & Tribó, Josep A., 2014. "Impact of ethical behavior on syndicated loan rates," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 122-144.
  7. Steen Thomsen, 2001. "Business Ethics as Corporate Governance," European Journal of Law and Economics, Springer, vol. 11(2), pages 153-164, March.
  8. Somanathan, E. & Rubin, Paul H., 2004. "The evolution of honesty," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 1-17, May.
  9. Balan, David J. & Knack, Stephen, 2012. "The correlation between human capital and morality and its effect on economic performance: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 457-475.
  10. Daniel Arce M. & L. Gunn, 2005. "Working Well with Others: The Evolution of Teamwork and Ethics," Public Choice, Springer, vol. 123(1), pages 115-131, April.
  11. Noe, Thomas H. & Rebello, Michael J., 1995. "Consumer activism, producer groups, and production standards," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 69-85, June.

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