Firms And The Environment In The Global Economy: Conceptual Background And Policies

In a capitalist system, can we expect firms to take into consideration the social environment in which they operate, and the environment per se, in their decision making process? If not, should we appeal to the moral values of managers to satisfy social and environmental needs? Or should we set up the right institutional structure so as for firms and managers to strive also for the satisfaction of these needs? In other words, should we rely on "ethics" or "incentives" to reach desired social goals, and, more specifically, not to pollute or to clean the environment?Needless to say, the answers given to these questions are of paramount importance not only for society as a whole, but also to define the proper role of individuals, firms and the government in order to satisfy both economic and environmental (social) objectives. The view of this paper is that in general incentives dominate ethics as a means of economic and social organization.After studying the meaning of the so-called social responsibility of the firm, and the on-going debate between economists and moral philosophers that follows, we show that their respective perception of man is at the heart of the dispute. This conceptual background being established, we analyse the misunderstandings occurring between economists and environmentalists with respect to cost-benefit analyses and, more generally, with respect to the role of the market and government in dealing with the subject matter. Based on this analysis it is possible to investigate and evaluate the main types of environmental policies, be they market-based or not, and their impact on firms' behavior. Finally, our conclusion recaptures the main arguments of our thesis.Presented 15th International Conference, Istanbul, May 2005.