Crossing the Line: Economic Incentives and Ethical Behavior

Crossing the Line: Economic Incentives and Ethical Behavior

Crossing the Line: Economic Incentives and Ethical Behavior Steven C. Agee, Ph.D. Professor of Economics and Director, Economic Research & Policy Institute A Brief History of Economic Thought! The term economics comes from the Ancient Greek oikonomia, management of a household from oikos, house; and nomos, custom or law, thus rules of the house(hold). Writings involving economics date back to early civilizations

including Greek, Roman, Indian, Chinese, Persian and Arab civilizations. Most of these early writings dealt with philosophy; good versus evil; right versus wrong; the self-interest of individuals. Adam Smith is generally considered the father of economics as a separate discipline. The Wealth of Nations (1776) identified land, labor and capital as the three factors of production and major contributors to a nations wealth. Economics is the study of how a society allocates scarce

productive resources, among conflicting or competing ends, in the most efficient manner. Contemporary Dimensions of Economics: Microeconomics examines the economic behavior of agents (including individuals and firms, consumers and producers) Macroeconomics examines the aggregate economy including variables such as unemployment, inflation, economic growth, monetary & fiscal policy

Positive Economics describing what is Normative Economics describing what ought to be How Do Ethics and Economics Relate? There are those who would argue that ethics has no role in economic behavior! There are others who understand ethical standards and behavior, but ignore these to gain a competitive advantage!

Discussion Topics Involving Ethics and Economics The Role of Incentives Daycare Centers The Bagel Man Inheritance Taxes (The Death Tax)

Babies Born in Michigan May 2010 Higher Incidence of Visual, Hearing or Learning Disabilities Does a Company have a Moral Obligation to pay a Living Wage to an Employee? The Recent Housing Crisis and the Role of the Federal Government (Fannie Mae & Freddie Mac) Conclusion Economic Incentives play a major role in individual and firm behavior and thus, at the

margin, can affect social and moral (ethical) outcomes. Decisions made by government, whether local, state, or federal often include incentives which can generate positive and negative externalities (Consider MAPS III) Questions?

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