Lecture 1: Part 2 - Market Ethics and Roles in business ethics

Question 1

What are the three key features of the market system?

Answer 1

1) Private ownership, profit motive and volountary exchange
2) Rights based utilitarianism
3) Invisible hand argument

Question 2

What is rights based utilitarianism?

Answer 2

The notion that the welfare of society can be improved by promoting efficiency

Question 3

What did adam smith’s Invisible Hand argument state

Answer 3

The benefit to society of the market system is not due to the concern of the well-being of others, but soley due to self interest

Question 4

What are the three issues in relation to the invisible hand argument?

Answer 4

1) Market failures
2) Collective choice and public goods
3) Prisoners dilemma

Question 5

What are market ethics

Answer 5

Ethical rules that apply in imperfect markets

Question 6

What do market ethics relate to? (four agrees)

Answer 6

1) Breaches of agreements or contracts
2) Fraud
3) Wrongful harm
4) Acting responsibly

Question 7

What is fraud?

Answer 7

Material representation made with an intent to deceive that causes harm to a party that reasonably relies on it

Question 8

What are the four primary reasons for market failures?

Answer 8

1) No perfect competition - given the existence of monopolies
2) No perfect rationality - people lack the ability to gather and process information to act in their own interests, and also human motivation is complex
3) Existence of externalises- efficiency argument assumes that there are no spillovers, and all costs of production are reflected in price of goods - not the case and often left to governments
4) Collective choice - left to a few individuals - rationality is that each individual will make choices to maximise their own welfare, and therefore the choice will be rational and benefit society as a whole

Question 9

What are the features of public goods and what issue are they prone to - in relation to collective choice

Answer 9

Not rival or excludable - subject to free rider problem - if everyone acts in their own interest, everyone would be a free rider in relation to public goods, as there is not profit - issue is therefore left to governmnet

Question 10

What is the message behind the prisoners dilemma? What is the solution usually to a prisoner dilemma?

Answer 10

Rational collective choice can only be made if each person in a system of cooperative behaviour can be convinced that others will act in the same way.
Solution = government intervention

Question 11

What are the two most important roles in business relationships?

Answer 11

Agent and fiduciary

Question 12

What is the role of the agent?

Answer 12

Engaged to act on behalf of the principal, and the agent becomes an extension of the principle and will act solely for their benefit

Question 13

What is the role of fiduciary?

Answer 13

Entrusted with the care of another’s property or assets and has a responsibility to exercise discretionary judgement in this capacity solely in the other person’s interests.

Question 14

What is the fiduciary duty? What are the three elements of the fiduciary duty?

Answer 14

Duty of a person who is the fiduciary to act solely in the interests of the beneficiary, without gaining any material benefit or knowledge. Three elements:

• Candor: Duty to disclose all information relevant
• Care: Manage what is trusted with due care
• Loyalty: Act in beneficiaries interest, and not own interests

Question 15

What is ethical reasoniing?

Answer 15

• Identification of ethical concepts and principles

- Intellectual procedure for justifying ethical judgement

Question 16

What are the three levels, and six stages in Kohlberg’s stages of ethical reasoning?
What does his theory say in relation to ethical reasoning?

Answer 16

Levels:
Level 1: Pre-conventional morality
> Stage 1: Obedience and punishment orientation
> Stage 2: Self- interest orientation
Level 2: Conventional morality
> Stage 3: Good interpersonal relations
> Stage 4: Authority and social order orientation
Level 3: Post-conventional morality
> Stage 5: Social contract and individual rights orientation
> Stage 6: Universal principle orientation

Question 17

What occurs in the stages?

Answer 17

Level 1: Pre-conventional level
> Stage 1: Infants are concerned only with the avoidance of punishment
> Stage 2: Infants are concerned with the pursuit of their own welfare
Level 2: Conventional level
> Stage 3: Children seek to conform to the expectations of others
> Stage 4: Children understand the importance of rules and laws in enabling social order
Level 3: Post- conventional level
> Stage 5: Adults develop the cognitive ability to understand morality as a social contract that facilitates cooperation
> Stage 6: Engage in principled ethical reasoning, where rights and justice are recognised, on the basis of morality

Question 18

What is the boatright framework? What are the 7 principles and concepts?

Answer 18

Boatright framework identified the relevant concepts and principles, not rules, for ethical reasoning

1) Welfare - welfare should be promoted, and any infliction of harm requires moral justification
2) Duty Moral requirement to act in a certain way - something we ought to do
3) Rights - Entitlement whereby a person is due certain treatment from others
4) Fairness - Equal treatment or different treatment according to justified principal
5) Honesty - can be regarded as a duty, basic ethical principal to be upfront and not lie
6) Dignity - all people deserve respect as human beings
7) Integrity - denotes a person of character or virtue, who holds the right values

Question 19

What did the ultimatum bargining game find?

Answer 19

• Found that were the second player chooses to either accept or reject the proposed split amount.
• Found that where the experiment is conducted by members of a social group that know each other, splits of less than 30% are rejected.

Question 20

What are the two reasons people are likely to reject offfers less than 50%? What does the game illustrate in relation to ethics?

Answer 20

Two reasons
- Altruistic punishment: rejects offers to teach the first player a lesson and thereby reduce the likelihood the player will make the unfair offer again in the future
- Self- control: rejections constitute a failure to inhibit a desire to punish the other player for making an unfair offer.
Ethics link: unwillingness to accept injustice. The tendency to refuse small offers may be seen as relevant to the concept of ‘honour’