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Morality in the market

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  • Ognedal, Tone

Abstract

Being honest can be a competitive disadvantage. In markets with the opportunity to violate laws and regulations, producers who are willing to cheat may crowd out more efficient producers who are honest, and buyers who are willing to cheat may crowd out honest buyers with higher willingness to pay. This mechanism makes morality (honesty) a bad substitute for sanctions in markets. Honesty reduces cheating, but the output may be less efficiently produced and less efficiently allocated among buyers. I also show that the effect of honesty depends crucially on the fraction of honest traders among both buyers and sellers. While it does not matter whether a buyer or a seller pays the sanction, it does matter who is honest.

Suggested Citation

  • Ognedal, Tone, 2016. "Morality in the market," Journal of Economic Behavior & Organization, Elsevier, vol. 129(C), pages 100-115.
    • Handle: RePEc:eee:jeborg:v:129:y:2016:i:c:p:100-115
    DOI: 10.1016/j.jebo.2016.06.010
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    Cited by:

    1. Christoph Rössler & Tim Friehe, 2020. "Liability, morality, and image concerns in product accidents with third parties," European Journal of Law and Economics, Springer, vol. 50(2), pages 295-312, October.

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    Keywords

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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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