Descriptive vs prescriptive theories
- Descriptive: Factual
- What is the case
- Prescriptive: values based
- The ideal- what ought to be the case
- Essentially rules telling us how to behave
- eg. ethics, law, social norms
Arrow and the justification of the market
- Contributions: Purchasing labour and goods, Producing goods
- other: personal meaning, social cooperation, efficiency
- Profit as a measure of contribution to the common good/value ( in a freemarket of voluntary exchange, assuming consumer rationality)
- Impact: pollution, congestion
- Other: thing addiction, undermining relationships, resource depletion
- Undermined by monopoly
- Problem of distribution (1%)
- Undermining altruism
- Descriptive vs prescriptive
- Descriptive: claims that it is a fact that we do always act in the pursuit of self interest
- Ethical egoism is the claim that we should always pursue own interests
A central assumption of economics since Adam Smith
- A Pareto efficient exchange is one that
- makes one at least one person better off and no-one worse off (by their own assessment)
- A state of Pareto optimality (maximum
- efficiency) is where no one can be madebetter off without anyone else being made
- worse off
Objecting to ethical egoism
- It cannot adjudicate conflict (eg. competition over a scarce resource) and as yet markets are not perfect.Self interest may often be acceptable, and up to
- a point required (eg: self-esteem needs) but to
- consider altruism to be immoral (ag: Ayn Rand) seems deeply counterintuitive, perhaps nonsensical
- Shaw – morality is generally seen as a restraint on self interest – hence egoism oxymoronic
Threats to efficiency
- Overutilisation of (free) public goods (externalising costs)- eg. public highways
- Information asymmetry and trust (both ways, eg. the disadvantage experienced by those selling quality used cars)
Assumptions of efficient markets
- No barriers to entry or exit
- Low/no transaction costs
- Multiple sellers and buyers/ employers and employees
- No information asymmetries
- No externalities (fully assigned property
- Everyone has something to exchange
- No corporate influence
- Where these assumptions are not met, must be some regulation
- Regulation: addressed assurance problem/prisoners dilemma
- Good for essentials (eg. product safety)
- Slow and inflexible or complex
- Legal liability: incentivises both consumers and good professionals
- Subject to financial clout 'cost of doing business)
- Tax: assurance/prisoner's dilemma
- Flexible and incentivises innovation
- Subject to financial clout
Business should be run to create value for all stakeholders.
Whoa re stakeholder?
- All those who have a stake in or claim upon the corporation, for example
- Local community
- A lot more and everyone is not only one type of stakeholder.
Two categories of stakeholder definitions
- Moral definition: stakeholder owed a corresponding duty. Stakeholder are those who have contributed a stake and, as a result.
- have a right to benefit or be protected from harm
- Strategic definition: stakeholder management is useful who will increase the value of business.
- Would define stakeholders as those necessary for the business to exist.
Donaldson and Preston (1995) classify stakeholder theories by their separate levels:
- Donaldson and Preston (1995) classify stakeholder theories by their separate levels:
- 1. Descriptive
- How do companies respond to stakeholders?
- 2. Instrumental
- How could companies respond to stakeholders?
- 1 and 2 will consider as 'instrumental'.
- 3. Normative
- How should companies respond to
The economic argument for the
- Markets do not operate efficiently where there are
- Information asymmetry
- Monopoly power
- Efficiency will be increased if corporations recognise and manage the interests of their stakeholder groups. (Who is a stakeholders and which stakeholder count?)
Instrumental level stakeholder theory
- That managers attend to stakeholders as a means to achieving other organizational
- goals such as profit or shareholder wealth maximization
- Stakeholder management is just good management and will lead to maximizing profits”.
Normative level stakeholder theory
Kantian deontological principle: