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Ethics, Economic Organisation and the Social Contract

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  • Lorenzo Sacconi

    () (Department of Economics, Universitˆ of Trento)

Abstract

This chapter introduces a notion of social/ethical norm that integrates its description as a self- sustaining regularity of behavior with the normative meanings of the statements by which a norm is formulated in the moral language. This definition is applied to organizational ethics where the main problem Ð abuse of authority - is identified with the help of a critical reading of the new-institutional economic theory of the firm. Given a game theoretical definition of an institution, it is then shown that only by integrating it with the social contract as shared mode of reasoning the process of convergence to the beliefs system that backs an equilibrium institution may be started. Thus the chapter illustrates the egalitarian social contract as both an impartial justification for organizational constitutions and as an equilibrium selection device. It is shown that equilibrium selection through the social contract solves the problem of legitimization of authority in the organizational relation between a non-controlling stakeholder and the entrepreneur or the management of a firm, holding hierarchical authority over the stakeholder. The result is a fiduciary relation between a stakeholder (the trustor) and the owner, director or manager (the trustees) based on fair distribution of the firm surplus. This is the basis for the explanation of corporate social responsibility, understood as an extended model of organizational governance. It generalizes to all the possible ownership forms of the economic organization, giving credit to the idea that social responsibility is an overarching social norm in the field of organization governance.

Suggested Citation

  • Lorenzo Sacconi, 2012. "Ethics, Economic Organisation and the Social Contract," Econometica Working Papers wp41, Econometica.
  • Handle: RePEc:ent:wpaper:wp41
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    References listed on IDEAS

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    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
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    8. Lorenzo Sacconi, 2007. "A Social Contract Account for CSR as an Extended Model of Corporate Governance (II): Compliance, Reputation and Reciprocity," Journal of Business Ethics, Springer, vol. 75(1), pages 77-96, September.
    9. Binmore, Ken, 1987. "Modeling Rational Players: Part I," Economics and Philosophy, Cambridge University Press, vol. 3(02), pages 179-214, October.
    10. Lorenzo Sacconi & Marco Faillo, 2010. "Conformity, reciprocity and the sense of justice. How social contract-based preferences and beliefs explain norm compliance: the experimental evidence," Constitutional Political Economy, Springer, vol. 21(2), pages 171-201, June.
    11. Binmore, Ken, 1988. "Modeling Rational Players: Part II," Economics and Philosophy, Cambridge University Press, vol. 4(01), pages 9-55, April.
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    13. Lorenzo Sacconi, 2006. "A Social Contract Account for CSR as an Extended Model of Corporate Governance (I): Rational Bargaining and Justification," Journal of Business Ethics, Springer, vol. 68(3), pages 259-281, October.
    14. Kaufman, Allen, 2002. "Managers’ Double Fiduciary Duty: to Stakeholders and to Freedom," Business Ethics Quarterly, Cambridge University Press, vol. 12(02), pages 189-214, April.
    15. Binmore, Ken, 1989. "Social Contract I: Harsani and Rawls," Economic Journal, Royal Economic Society, vol. 99(395), pages 84-102, Supplemen.
    16. Gianluca Grimalda & Lorenzo Sacconi, 2005. "The Constitution of the Not-For-Profit Organisation: Reciprocal Conformity to Morality," Constitutional Political Economy, Springer, vol. 16(3), pages 249-276, September.
    17. Binmore, Ken, 2005. "Natural Justice," OUP Catalogue, Oxford University Press, number 9780195178111.
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