Ethical Principles and Economic Analysis

Traditional economics assumes that economic agents are self-interested, whereas arguably individuals are ethically motivated and aware, and hence economic analysis can benefit from an incorporation of ethical motivation, awareness and intention. We argue that ethics can be incorporated into the individual decision-making process by adapting the assumption that individuals are self-interested through an expansion of the notion of self-interest which is consistent with rationality. Ethical motivation therefore has a self-interested foundation, as ethical motivation appears as an extension of self-interest rather than as pure ethical motivation alone. The ethical behaviour which is most appealing is where individuals act ethically due both to an intrinsic valuation of ethics and because it is in their self-interest, rather than because it is in their self-interest alone. This type of ethical behaviour can be represented using a two-stage process, whereby individuals firstly adopt ethical principles because they value ethics in itself, and secondly because it is in their interest to do so. This two-stage process builds on insights provided by, among others, Sen and Etzioni. The first stage of the two-stage process (where the individual makes a commitment to ethical principles due to the intrinsic value of ethics rather than its instrumental value) is the most challenging for economic analysis. Two possible frameworks are suggested based on commitment and learned behaviour and institutional analysis. We find that both frameworks are suggestive but a complete analysis requires inputs from wider socio-political factors.