Stefanie Haeffele and Virgil Henry Storr
Over time, the fields of economics and ethics have become more distinct with economics focusing on the rationality of actors, the incentives they face, and the outcomes of interacting within an amoral market setting. However, in the real world, economics and ethics are more interconnected. Humans are social and ethical beings regardless of setting. Recent studies have shown that individuals reward trustworthiness, punish dishonesty, and can develop meaningful social bonds within markets. Economists, seeking to better understand the world, should incorporate ethics into their economics. We argue that Adam Smith is an exemplar of pursuing a fuller approach to social science, and utilize his arguments on both economics and ethics to advance a study of ethical markets.
George Wu, Richard P. Larrick, and Raegan Tennant
Samuel A. Swift and Don Moore
This chapter examines the interrelationships between democracy on the one hand and capitalism (or what I prefer to call “the liberal economy”) on the other. Liberal thinkers tend to maintain that the two are allies, at least as long as democracy is (constitutionally or otherwise) limited. Socialists regard them as rivals, as “true” democracy can be realized only under socialism or communism. Joseph Schumpeter stands out as the commentator who argued that there is no strong relationship at all between the two: any economic arrangement can be combined successfully with any political arrangement. I survey both the classical views on this topic and a number of more recent contributions.
This article considers another cause of conflict, one that has received much less attention than informational problem: commitment problems. Such problems essentially derive from the inability of parties to write binding long-term contracts on arming or anything else. Commitment problems can lead to conflict primarily because negotiated outcomes and conflict often imply different future strengths for the adversaries. Added “benefits” of war can induce adversaries to fight instead of negotiate. The discussion looks on cases in which commitment problems come about as power shifts against one of the adversaries in favor of the other over time. The side that is expected to lose power might then decide to fight, rather than negotiate, as a way of forestalling its decline. The article also discusses how similar commitment problems extend to cases of domestic politics.
Zoe I. Barsness
Kathleen L. McGinn and Markus Nöth
Joan Esteban and Debraj Ray
This article reviews and compares different measures of polarization within a unifying framework. A country can be highly unequal in income and wealth, but it might not be highly polarized in economic terms. Conversely, a country can be considered economically equal, but nonetheless highly polarized, if there are two distinct, though not too distant, income groups facing one another. Similar comments apply to other ethnic or religious measures of fragmentation. The discussion focuses on unidimensional polarization, the leading example being income polarization.
Nancy R. Buchan, Enrique Fatas, and Gianluca Grimalda
Francesca Gino and Catherine Shea
Eyal Zamir and Barak Medina
Welfare economics—the normative branch of economics—is a consequentialist moral theory. Unlike deontological morality, at least in its basic form it attributes no intrinsic value to prohibitions on active or intentional harming of other people, lying, or promise-breaking, and does not allow people to prioritize their own interests over the overall good. The chapter critically examines several methods of incorporating deontological constraints and options into economic analysis of law and into welfare economics more generally. These methods include an analysis of the long-term and indirect effects of apparently efficient infringements of deontological constraints; a move from act- to rule-consequentialism; incorporating deontological concerns into the definition of good outcomes that should be maximized; and the treatment of moral judgments as preferences whose fulfillment should be maximized along with any other. In addition to these indirect ways, the chapter also examines the integration of thresholds constraints and options into economic analysis of law.
Michelle R. Garfinkel and Stergios Skaperdas
This article introduces economic perspectives on peace and conflict, briefly summarizes the contents of each part, and discusses future research directions. This handbook aims to bring different viewpoints, perspectives, and methods to the study of peace and conflict. A conflictual situation is one in which two or more actors engage in the choice of costly inputs that are adversarially combined against one another and generate no positive external effects for third parties. The study of peace and conflict is important from an economic perspective, not simply because it provides another area for applying the discipline's methods, but because it is integral to understanding how economies actually function. Power considerations cannot be realistically separated from markets.
Peter Boettke and Kaitlyn Woltz
Twentieth-century Austrian economists became known as champions of the free-market system yet claimed value-freedom in their economic analysis. However, advocacy of free markets is viewed as inherently ideological, involving ethical assumptions within the economic analysis. In this chapter, we discuss the connection between economics and ethics in the Austrian school of economics. We explore what value-freedom in the Austrian school entails and how twentieth-century Austrian economists were able to hold dual positions as value-free economists and advocates of free markets. We argue that Austrian economists separate ethical assumptions from their economic analysis. They maintain strict adherence to value-free analysis through an emphasis on social cooperation, which allows them to maintain their objectivity with respect to individuals’ ends. This combination allows Austrian economists to maintain their positions as value-free scientists while arguing that a free-market, capitalist system will best achieve peoples’ diverse ends.
A central issue that arises when there are more than two rivals, within the international system or within a single state, is the formation of alliances. What determines whether or not alliances form and, in the event that they do form, which groups are likely to do so? This article draws on several strands of the game theory literature, including but not limited to those on coalition formation and contests, to provide answers to such questions. One area of interest here concerns the choice of solution concept to ensure the stability of alliances. The sharing rule for the spoils of war among alliance members is another modeling choice to which theoretical predictions are sensitive but also empirically important.
Joseph E. Stiglitz and Linda J. Bilmes
This article provides updated estimates of the costs of the Iraq war and the Afghanistan wars. With all the caveats that one can apply, the current estimate of the cost of the two wars falls between $4 and $6 trillion. In addition to the known costs of conducting current and future military operations, caring for war veterans, and macroeconomic impacts, the most sobering costs of the Iraq conflict are in the category of opportunity costs. In the absence of the Iraq invasion, would the United States be mired for so long in Afghanistan? Would oil prices have risen so rapidly? Would the U.S. federal debt be so high? Would the economic crisis have been so severe? This article argues that the answer to all four of these questions is no.
Jonathan B. Wight
Traditional approaches to understanding morality, through evaluating outcomes, analyzing rules, principles, and duty, and adhering to notions of virtue and character, offer competing but also complementary ways of framing conduct in a social setting. Ethical pluralism is the claim that all three methods are, to some degree, useful to positive economics because each provides distinctive insights into human behavior. Each is also useful in normative economics because a single framework has limitations that are solved by introducing elements from the others. The neoclassical economic approach, concerned ostensibly with outcome goals, must consider how economic agents are motivated by duty and virtue ethics considerations. Adam Smith’s virtue ethics, for example, arise from moral sentiments, not rational calculation. In considering the morality of efficiency, a Paretian approach derives ultimately from Kantian considerations, and the Kaldor-Hicks approach relies on background conditions of human rights and other non-outcome based elements.
John B. Davis
This chapter examines the nature of ethics and economics as a single subject of investigation, and uses a complex systems approach to characterize the nature of that subject. It then distinguishes mainstream economic and social economic visions of it, where the former assumes that market processes encompass social processes, and the latter assumes that market processes are embedded in social processes. For each vision, strong and weak theses are compared. Both visions are first explained in terms of their respective views of the positive-normative distinction, then in terms of a central normative principle, and then in terms of their policy strategies. The chapter closes with comments on the future status of ethics and economics as a single subject of investigation.