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What if the Twin Pillars Prevailed?

In: SEEKING ADAM SMITH Finding The Shadow Curriculum of Business

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  • Eli P Cox III

Abstract

The twin pillars of free-market capitalism, economic man and perfect competition, are foundational for the neoclassical economic theories and methods that have transformed business education and practice. These theories and methods were developed originally to predict economic outcomes useful for legislators and public policymakers, but their scope has been expanded to include problems relevant to business executives. Unfortunately, application of transaction cost theory, agency theory, and the related theories and methods discussed in Chap. 4 have contributed to outcomes that were the opposite of their creators’ good intentions. Rather than strengthening business operations, they undermined them greatly and sparked the dot.com and subprime conflagrations. I have found no evidence that reputation theory contributed directly to these disasters. However, reputation theory employs game theory and typical neoclassical assumptions, and is thus useful in helping to explain why institutions that were supposed to maintain the integrity of financial markets failed to do so.

Suggested Citation

  • Eli P Cox III, 2017. "What if the Twin Pillars Prevailed?," World Scientific Book Chapters, in: SEEKING ADAM SMITH Finding The Shadow Curriculum of Business, chapter 7, pages 101-120, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813206748_0007
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    Keywords

    Financial Crises; United States; Corporations; Moral and Ethical Aspects; Business Education; Business Ethics; Economics-Moral and Ethical Aspects; Adam Smith;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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