Moral Costs Research Articles

Deception and Reciprocity

We experimentally investigate the relationship between (un)kind actions and subsequent deception. In a two-player, two-stage game, the first-stage varies the kindness of an interaction between a pair of individuals. The second-stage gives one player the opportunity to lie to her counterpart. We study two types of deception: Selfish lies that benefit the self and are costly for the counterpart, and spiteful lies that are costly for both players. We find that, in the domain of selfish lies, kind actions are rewarded by honesty whereas there is no evidence of punishment of unkind actions. Further, we observe that individuals have a moral cost of lying regardless of the level of (un)kindness of the previous interaction: lying rates are lower than direct-punishment rates for every level of (un)kindness. With spiteful lies, our results point to negative reciprocity, and we find no difference between lying rates and direct-punishment rates. Taken together, our results suggest that motives for lying depend on the type of lie.

(Economic Effectiveness in Emergency Rescue Work)

Bulgarian Abstract: Докладът разглежда икономическата ефективност при аварийно спасителни работи, като акцентира на очакваните социални ефекти и формулира основни изводи за връзката между икономическата и социалната активност и нуждата от приложение на интегрирани подходи за оценка на ефективността. Ефективността, като социален феномен, се явява във вида на качествено-количествената характеристика за максимално развитие на човешките ресурси, форми на социална жизнедеятелност и управление на обществото, при отчитане на минималните социални, политически, икономически и нравствени разходи. Този подход ни позволява да разглеждаме социалната ефективност като универсален подход за изразяване степента за резултативност на позитивното и негативното функциониране в развитието на социалните институти и процеси. При това, широко разбираният принцип за социална ефективност излиза извън пределите на даденото съотношение, доколкото отчита и интегрира още няколко най-важни измерения на ефективността от социалната дейност. Става дума за нейната ориентираност за достигане на обществено значими, нормативно зададени цели за развитие на обекта за социално управление, оценката за последователността и реалната степен за приближение до търсения обществен интерес в порядъка на „саморазвитие” на системата, ориентацията спрямо качеството на управленската дейност. Тези аспекти за измерване на социалната ефективност следва закономерно да намерят отражение в построяването на общия модел или принцип за икономическа и социална ефективност, анализиран в настоящия доклад. English Abstract: The paper examines the economic efficiency in emergency rescue operations, focusing on the expected social impact and formulating basic conclusions about the relationship between economic and social activity and the need for application of integrated approaches to assess the effectiveness. Effectiveness as a social phenomenon appears in the form of qualitative and quantitative characteristics for maximum development of human resources, forms of social activities and management of society, taking into account the minimum social, political, economic and moral costs. This approach allows to consider social performance as a universal approach to express the level of productivity of research on positive and negative functioning in the development of social institutions and processes. Moreover, the widely understood principle of social effectiveness goes beyond the given ratio as far as it takes into account and integrates some other important dimensions of the effectiveness of social activity. It's about its orientation to achieve socially significant, legally set targets for development of the object of social management, evaluation of consistency and the actual degree of approximation to the searched public interest in the order of the self-development of the system, and the orientation towards quality management activities. These aspects for measuring the social performance should naturally be reflected in the construction of a general model or principle of economic and social effectiveness analyzed in this report.

The Cost of Doing Nothing

Since restoring the death penalty in 1978, California has condemned more than 900 individuals, yet executed just 13. The hundreds who remain are housed at San Quentin State Prison in a highly restricted cell block plagued by suicides, drugs, mental illness, neglect and idleness. This essay offers a glimpse at the lives, despair and deaths of condemned killers who wait decades for executions that never come. It questions the moral cost of such limbo.

Facsimiles of Flesh

AbstractEd Gein was a serial killer, grave robber, and body snatcher who made a lampshade from human skin. Now consider the detective who found that lampshade. Let's suppose that he would never want to own it; however, he does find that he wants a synthetic one just like it – a perfect replica. We assume that there is something morally problematic about the detective having such a replica. We then argue that, given as much, we can reach the surprising conclusion that it's morally problematic to consume realistic fake‐meat products. After explaining why we might the detective's replica lampshade morally problematic, we clarify the analogy between the replica and fake meat products. Then, we defend it against a number of objections, the most notable one being we can sever any association between fake meat and the real stuff without moral cost. We conclude by pointing out that our argument generalises: if it works, then there is something morally problematic about many fake animal products, including fake leather and fur.

Morality, tax evasion, and equity

This paper considers tax evasion with morality and its implication for equity of the tax system. In the standard model of tax evasion without moral costs, higher-income taxpayers evade more, relative to their incomes, than lower-income taxpayers, and evasion makes the tax system regressive. With moral costs, equity of the tax system depends on the degree of morality. As the level of morality in society increases, it increases moral costs of evasion and evasion become inferior. Higher-income taxpayers evade less and pay more taxes, and evasion makes the tax system progressive for a high level of morality. The opposite holds true and evasion makes the tax system regressive for a low level of morality.

Optimal Unemployment Insurance with Endogenous Negative Duration Dependence

This article characterizes optimal unemployment insurance (UI) in an economy with endogenous negative duration dependence in hiring rates for the unemployed. The characterization generalizes the standard Baily–Chetty result and is independent of the particular mechanism generating endogenous hiring rates. I find that at the social optimum, UI equates the moral hazard cost with the sum of the insurance benefit and a new externality correction term. The sign of this externality correction term depends, in part, on the responsiveness of hiring rates to the UI benefit. I show how the effect of UI on hiring rates in turn depends on the particular assumptions about firm behavior, considering the cases of employer screening and human capital depreciation models.

Does legality matter? The case of tax avoidance and evasion

Previous research argues that the law expresses social values and could, therefore, influence individual behavior independently of enforcement and penalization. Using three laboratory experiments on tax avoidance and evasion, we study how legality affects individuals’ decisions. We find that, without any risk of negative financial consequences, the qualification of tax minimization as illegal versus legal reduces tax minimization considerably. Legislators can thus, in principle, affect subjects’ decisions by defining the line between legality and illegality. However, once we introduce potential negative financial consequences, we observe no difference between legal and illegal tax minimization behavior. Only if we use moral priming to increase subjects’ moral cost do we again find a legality effect on tax minimization. Overall, this demonstrates the limitations of the expressive function of the law. Legality might be an important determinant of behavior only if we consider activities with little or no risk of negative financial consequences or if subjects are morally primed.

Removing Moral Hazard and Agency Costs in Banks: Beyond CoCo Bonds

The convex payoffs for equityholders in a corporate structure results in agency costs and moral hazard problems. The implicit government guarantee for banks accentuates these. We believe that the Basel III related bail-in contingent convertible (CoCo) structures do only not solve these problems, but may even aggravate them. In this paper we suggest solutions. The first is to replace the currently issued writedown/off and equity-conversion CoCo structures with a market-price equity-conversion CoCo bonds. This mirrors the full dilution effect of an ordinary equity raise in a distressed situation to reduce incentives for high risk-taking by equityholders. The second is to establish a Contingent Equity Base that replaces the incumbent shareholders once the CoCo is triggered. This will finally remove the perverse risk-taking incentives. The valuation of the CEB is then suggested.

Organizational Cultures of Corruption

AbstractSystematic differences in the incidence of corruption between countries can be explained by models of coordination failure that suggest that corruption can only be reduced by a “big push” across an entire economy. However, there is significant evidence that corruption is often sustained as an organizational culture, and can be combated with targeted effort in individual organizations one at a time. In this paper, we propose a model that reconciles these two theories of corruption.We explore a model of corruption with two principal elements. First, agents suffer a moral cost if their corruption behavior diverges from the level they perceive to be the social norm; second, the perception of the norm is imperfect; it gives more weight to the behavior of colleagues with whom the agent interacts regularly. This leads to the possibility that different organizations within the same country may stabilize at widely different levels of corruption. Furthermore, the level of corruption in an organization is persistent, implying that some organizations may have established internal “cultures” of corruption. The organizational foci are determined primarily by the opportunities and (moral) costs of corruption. Depending on the values of these parameters, the degree of corruption across departments may be relatively uniform or widely dispersed.These results also explain another surprising empirical observation: that in different countries similar government departments such as tax and education rank very differently relative to each other in the extent to which they are corrupt. This is difficult to explain in incentive‐based models if similar departments face similar incentives in different countries.

Tobacco bans and smokers’ autonomy

Should tobacco be banned? The answer depends largely on two further questions. How much are smokers benefitted by being made to stop, or to not start? And what is the...

Three Models of Group-Differentiated Rights

Group-differentiated rights, or rights that vest on the basis of an individual's membership in a particular social or cultural group, are an increasingly common and controversial aspect of modern liberal legal systems. In justifying such rights, theorists have largely focused on demonstrating the conformity of group-differentiated rights with principles of liberal neutrality. This article suggests that group-differentiated rights present a further, largely unrecognized, potential moral cost from the perspective of liberal theory. Group-differentiated rights threaten to impede individual self-invention. The first section of the article introduces the essential terms and structure of the contemporary debate over group-differentiated rights. The second section describes analytically the processes by which rights categorize persons and influence social identity. The third section then constructs a liberal theory of membership, the central precept of which is individual constitutive autonomy. The fourth section describes three models (ascription, affirmation and culturalization) of the process by which social and cultural groups and identities may be constituted by rights, and evaluates each model according to the principles which inform the liberal conception of membership previously constructed. The analysis demonstrates that while the group-differentiated form of right does indeed threaten individual constitutive autonomy, the true extent of any loss depends in significant part upon the particular model invoked.

Should Unemployment Insurance Vary with the Unemployment Rate? Theory and Evidence

We study how the marginal welfare gain from increasing the unemployment insurance (UI) benefit level varies over the business cycle. We do this by estimating how the moral hazard cost and the consumption smoothing benefit of UI vary with labour market conditions, which we identify using variation in the interaction of UI benefit levels with the unemployment rate within U.S. states over time. We find that the moral hazard cost is procyclical, greater when the unemployment rate is relatively low. By contrast, we do not find evidence that the consumption smoothing benefit varies with the unemployment rate. We use these empirical results to estimate the marginal welfare gain, and we find that it is modest on average, but varies positively with the unemployment rate.

The victim matters – experimental evidence on lying, moral costs and moral cleansing

ABSTRACTIn an experiment on moral cleansing with an endogenously manipulated moral self-image, we examine the role of the addressee of an immoral action. We find that cheating is highest and moral cleansing lowest when subjects cheat at the expense of the experimenter, while cheating is lowest and moral cleansing highest once cheating harms another participant. A subsequent measurement of subjects’ moral self-image supports our interpretation that the occurrence of moral cleansing crucially depends on the moral costs resulting from immoral actions directed at individuals in different roles. Our results can help to explain the different propensity to cheat and conduct moral cleansing when immoral actions harm either another person or representatives of organizations.

The Victim Matters - Experimental Evidence on Lying, Moral Costs and Moral Cleansing

In an experiment on moral cleansing with an endogenously manipulated moral self-image, we examine the relevance of the addressee of an immoral action. The treatments differ such that cheating on a die roll reduces either the experimenter’s or another subject’s payoff. We find that cheating is highest and moral cleansing lowest when subjects cheat at the expense of the experimenter, while cheating is lowest and moral cleansing highest once cheating harms another subject. A subsequent measurement of subjects’ moral self-image supports our interpretation that the occurrence of moral cleansing crucially depends on the moral costs resulting from immoral actions directed at individuals in different roles. Our results can help to explain the different propensity to cheat and conduct moral cleansing when immoral actions harm either another person or the representatives of an organization.

Who Should I Share Risk with? Gifts Can Tell: Theory and Evidence from Rural China

This paper studies how gift exchange may help to overcome limited commitment problem in risk sharing. When efficient contract enforcement is lacking, people rely on friends (or relatives) to share risk since emotional or moral cost of defaulting between friends can help to prevent moral hazard. The problem is how to distinguish between friends and non-friends? Gift expense serves as a signal of friendship since giving a gift is less costly for a friend than a non-friend due to altruism. The model re-evaluates the role of gift exchange in developing economies, and helps to rationalize the large amount of gift exchange in China (10% of living expenditure). As a signal, gift exchange improves the efficiency in risk sharing and facilitates favor exchange, but I also demonstrate that the welfare gains due to this improvement may be offset by increased inequality. By using a unique data set containing detailed records about gift exchange in rural China, the empirical study suggests gift expenses, as a signal, significantly increase the probability of risk sharing. I also show further empirical evidence to the theory by testing more model predictions.

Estimating the Cost of Justice for Adjuncts: A Case Study in University Business Ethics

American universities rely upon a large workforce of adjunct faculty—contract workers who receive low pay, no benefits, and no job security. Many news sources, magazines, and activists claim that adjuncts are exploited and should receive better pay and treatment. This paper never affirms nor denies that adjuncts are exploited. Instead, we show that any attempt to provide a significantly better deal faces unpleasant constraints and trade-offs. “Adjunct justice” would cost universities somewhere between an additional $15–50 billion per year. At most, universities can provide justice for a minority of adjuncts at the expense of the majority, as well as at the expense of poor students. Universities may indeed be exploiting adjuncts, but they cannot rectify this mistake without significant moral costs.

Why do scientists cheat? Insights from behavioral economics

Based on a review of the books by Wible (2014), Stephan (2012), and Lanteri and Vromen (2014), I discuss three different ways in which behavioral economics can enrich the understanding of scientific misbehavior. First, behavioral economics suggests that economic theories of scientific misbehavior, such as the one by Wible (2014), should consider moral costs of cheating, i.e. costs that arise from an individual’s desire to do the “right thing.” Second, behavioral economics demonstrates several ways in which the features of the reward scheme in science,as described by Stephan (2012), can favor cheating. Her conclusion that shirking is rarely an issue in science seems optimistic. Third, behavioral economics indicates that individual characteristics matter for cheating. According to Lanteri and Vromen (2014), economists possess different characteristics than other researchers. Hence, the reaction to incentives may differ across disciplines. Considering these insights is important to assess how a goal such as the pursuit of truth can be achieved efficiently.

Arguments against Drone Warfare with a Focus on the Immorality of Remote Control Killing and "Deadly Surveillance"

Arguments against Drone Warfare with a Focus on the Immorality of Remote Control Killing and "Deadly Surveillance"

The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden

This paper provides a simple, yet robust framework to evaluate the time profile of benefits paid during an unemployment spell. We derive sufficient-statistics formulae capturing the marginal insurance value and incentive costs of unemployment benefits paid at different times during a spell. Our approach allows us to revisit separate arguments for inclining or declining profiles put forward in the theoretical literature and to identify welfare-improving changes in the benefit profile that account for all relevant arguments jointly. For the empirical implementation, we use administrative data on unemployment, linked to data on consumption, income, and wealth in Sweden. First, we exploit duration-dependent kinks in the replacement rate and find that, if anything, the moral hazard cost of benefits is larger when paid earlier in the spell. Second, we find that the drop in consumption affecting the insurance value of benefits is large from the start of the spell, but further increases throughout the spell. In trading off insurance and incentives, our analysis suggests that the flat benefit profile in Sweden has been too generous overall. However, both from the insurance and the incentives side, we find no evidence to support the introduction of a declining tilt in the profile. (JEL D82, E21, E24, J64, J65)

Dishonesty: From parents to children

Acts of dishonesty permeate life. Understanding their origins, and what mechanisms help to attenuate such acts is an underexplored area of research. This study takes an economic approach to explore the propensity of individuals to act dishonestly across different contexts. We conduct an experiment that includes both parents and their young children as subjects, exploring the roles of moral cost and scrutiny on dishonest behavior. We find that the highest level of dishonesty occurs in settings where the parent acts alone and the dishonest act benefits the child. In this spirit, there is also an interesting, quite different, effect of children on parents’ behavior: parents act more honestly under the scrutiny of daughters than under the scrutiny of sons. This finding sheds new light on the origins of the widely documented gender differences in cheating behavior observed among adults, where a typical result is that females are more honest than males.