Does Competition Destroy Ethical Behavior?

Andrei Shleifer

NBER Working Paper No. 10269
Issued in February 2004
NBER Program(s):   CF   IO   LS   LE

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.

(137 K)

Published: Shleifer, Andrei. "Does Competition Destroy Ethical Behavior?," American Economic Review, 2004, v94(2,May), 414-418.

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