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Insider Trading and the Social Contract

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  • Salbu, Steven R.

Abstract

The law of insider trading has progressed from an expansive approach, according to which all trading on nonpublic information was considered illegal, to a constricted approach, under which corporate outsiders are permitted to trade on nonpublic information provided such trading does not breach a fiduciary duty. This article analyzes both the former, expansive theory and the currently utilized constricted theory, within a framework of basic tenets of the American capitalist social contract regarding legitimacy of property claims. The existing constricted approach to the regulation of insider trading is found to be deficient in meeting the expectations of two core components of the social contract: it discourages procedural equality of opportunity, and it endorses claims to property that are not characterized by legitimate methods of acquisition or transfer. Because the old, expansive regulatory interpretation was more consistent with the terms of the social contract in regard to property claims, it served our economic and ethical expectations more effectively than the system presently in place. Accordingly, the article culminates in a recommendation that the expansive approach to regulating insider trading be reestablished under Unites States law.

Suggested Citation

  • Salbu, Steven R., 1995. "Insider Trading and the Social Contract," Business Ethics Quarterly, Cambridge University Press, vol. 5(2), pages 313-328, April.
    • Handle: RePEc:cup:buetqu:v:5:y:1995:i:02:p:313-328_01
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    Cited by:

    1. Bruce W. Klaw & Don Mayer, 2021. "Ethics, Markets, and the Legalization of Insider Trading," Journal of Business Ethics, Springer, vol. 168(1), pages 55-70, January.
    2. Jan Hanousek & Hoje Jo & Christos Pantzalis & Jung Chul Park, 2023. "A Dilemma of Self-interest vs. Ethical Responsibilities in Political Insider Trading," Journal of Business Ethics, Springer, vol. 187(1), pages 137-167, September.
    3. Sander De Groote & Liesbeth Bruynseels & Ann Gaeremynck, 2023. "Are All Directors Treated Equally? Evidence from Director Turnover Following Opportunistic Insider Selling," Journal of Business Ethics, Springer, vol. 185(1), pages 185-207, June.

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