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Does Competition Destroy Ethical Behavior?

  • Andrei Shleifer

Explanations of unethical behavior often neglect the role of competition, as opposed to greed, in assuring its spread. Using the examples of child labor, corruption, excessive' executive pay, corporate earnings manipulation, and commercial activities by universities, this paper clarifies the role of competition in promoting censured conduct. When unethical behavior cuts costs, competition drives down prices and entrepreneurs' incomes, and thereby reduces their willingness to pay for ethical conduct. Nonetheless, I suggest that competition might be good for ethical behavior in the long run, because it promotes growth and raises incomes. Higher incomes raise the willingness to pay for ethical behavior, but may also change what people believe to be ethical for the better.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10269.

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Date of creation: Feb 2004
Date of revision:
Publication status: published as Shleifer, Andrei. "Does Competition Destroy Ethical Behavior?," American Economic Review, 2004, v94(2,May), 414-418.
Handle: RePEc:nbr:nberwo:10269
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  1. Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
  2. Daniel Bergstresser & Thomas Philippon, 2003. "CEO incentives and earnings management," Proceedings 862, Federal Reserve Bank of Chicago.
  3. Lucian Arye Bebchuk & Jesse M. Fried, 2003. "Executive Compensation as an Agency Problem," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 71-92, Summer.
  4. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
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