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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.

Suggested Citation

  • Noe, Thomas H & Rebello, Michael J, 1994. "The Dynamics of Business Ethics and Economic Activity," American Economic Review, American Economic Association, vol. 84(3), pages 531-547, June.
    • Handle: RePEc:aea:aecrev:v:84:y:1994:i:3:p:531-47
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    Citations

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    Cited by:

    1. Patrick Francois & Jan Zabojnik, 2005. "Trust, Social Capital, and Economic Development," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 51-94, March.
    2. Fabrizio Zerbini, 2017. "CSR Initiatives as Market Signals: A Review and Research Agenda," Journal of Business Ethics, Springer, vol. 146(1), pages 1-23, November.
    3. 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.
    4. Quentin Dupont & Jonathan M. Karpoff, 2020. "The Trust Triangle: Laws, Reputation, and Culture in Empirical Finance Research," Journal of Business Ethics, Springer, vol. 163(2), pages 217-238, May.
    5. 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.
    6. Somanathan, E. & Rubin, Paul H., 2004. "The evolution of honesty," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 1-17, May.
    7. Farhad Hossain & Anthony Sumnaya Kumasey & Christopher J. Rees & Aminu Mamman, 2020. "Public service ethics, values and spirituality in developing and transitional countries: Challenges and opportunities," Public Administration & Development, Blackwell Publishing, vol. 40(3), pages 147-155, August.
    8. Francois, P. & Zabojnik, J., 2001. "Culture and Development : An Analytical Framework," Discussion Paper 2001-25, Tilburg University, Center for Economic Research.
    9. 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.
    10. Jiong Gong & R. Preston McAfee & Michael A. Williams, 2016. "Fraud Cycles," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(3), pages 544-572, September.
    11. Patricia Crifo & Hind Sami, 2011. "Incentives for Accuracy in Analyst Research," Working Papers hal-00561929, HAL.
    12. Bruce Ian Carlin & Simon Gervais, 2009. "Work Ethic, Employment Contracts, and Firm Value," Journal of Finance, American Finance Association, vol. 64(2), pages 785-821, April.
    13. 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.
    14. Daniel G. Arce, 2007. "Is Agency Theory Self‐Activating?," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 708-720, October.
    15. Paul Harvey & Mark J. Martinko & Nancy Borkowski, 2017. "Justifying Deviant Behavior: The Role of Attributions and Moral Emotions," Journal of Business Ethics, Springer, vol. 141(4), pages 779-795, April.
    16. Sun, Yeneng, 1998. "A theory of hyperfinite processes: the complete removal of individual uncertainty via exact LLN1," Journal of Mathematical Economics, Elsevier, vol. 29(4), pages 419-503, May.
    17. Bruce I. Carlin & Tarik Umar & Hanyi Yi, 2020. "Deputization," NBER Working Papers 27225, National Bureau of Economic Research, Inc.
    18. Steen Thomsen, 2001. "Business Ethics as Corporate Governance," European Journal of Law and Economics, Springer, vol. 11(2), pages 153-164, March.
    19. 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.
    20. 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.

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