Economics and the Limits of Optimization: Steps Towards Extending Bernard Hodgson’s <Emphasis Type="Italic">Moral Science</Emphasis>

In this essay, my point of departure is Bernard Hodgson’s analysis of neo-classical economic theory and his demonstration that neo-classical economic thought is already a branch of normative theory. I undertake to broaden the demonstration by showing that other contemporary conceptions of economics are also irreducibly normative. The essay begins with an overview of Hodgson’s argument strategy, and a discussion of his thesis that economics is a moral science. This illustrates in what way moral presuppositions are at play as core principles that both positivist and normativist economics take for granted. My strategy is to show that alternative conceptions of economics, in particular Schumpeterian accounts of evolution/innovation, and orthodox versions of ecological economics, share with classical and neo-classical economics normative assumptions about the common good, extending Hodgson’s thesis to one about moral science. For then these assumptions (both moral and scientific) commit economics to unworkable notions of social and environmental optimization that ignore the pure historical contingency of physical, economic, social and cultural conditions. It is concluded that the relationship between facts and values must be fundamentally retheorized.     

Analyzing a quantitative coordination relationship

Coordination is a crucial behavior in cooperative distributed problem solving (CDPS). Analyzing coordination requires an understanding of the interplay between the agents, their problem, and their environment. The core behaviors ofdistributed coordination in CDPS systems are the coherent specification and scheduling of tasks over the set of distributed agents working on sets of interrelated problems. The complexity of, and uncertainty about, the problem interrelationships make distributed task coordination difficult. This article describes a causal model of this process that links the interrelationships, calledcoordination relationships, to the local scheduling constraints of distributed agents. Besides coordination relationships, environmental uncertainty and the lack of infinite computational resources also make distributed coordination difficult.It is not only the presence or absence of a coordination relationship that is important, but its quantitative properties: how likely is it to appear, how significant is its effect, and so on. These aspects determine the usefulness of a particular coordination relationship in the context defined by an environment, a problem to be solved, and an agent architecture. This article discusses the analysis of coordination relationships, using as an example our abstract model for thefacilitates relationship. We detail the derivation and assumptions of this model and apply it to the design of a generalized coordination module that is separate from, and interfaces cleanly with, the local scheduler of a CDPS agent. A set of simulation experiments is described that test our assumptions and design process in the coordination of a group of real-time problem-solving agents.     

Organic Food at the Point of Purchase: Understanding Inconsistency in Consumer Choice Patterns

The organic food category, while still small in terms of world food production, has continued to grow in many markets in the developed world. This article focuses on understanding the barriers and facilitators to purchasing organic food at the final hurdle: the point of purchase (POP). A qualitative study has identified seven factors that influence buyer behavior at the POP, and these are consumer intention to purchase organic food when entering the retail outlet; habit; availability; false assumptions; visibility and access of organic food; visual and olfactory cues; and price. These can often be the final hurdle to consumers choosing (or not) organic food at the POP.     

The Exaggerated Moral Claims of Evolutionary Psychologists

This article explores and examines some of the findings from the burgeoning field of evolutionary psychology. How important are these results to our understanding of morality and ethics? In addition, more specifically, how important are theses results to our understanding of business ethics? I believe that the jury is still out on these questions. This article: (1) summarizes some of the strengths of evolutionary psychology (of which there are several); (2) identifies specific findings and suggests that many of these findings are overstated and exaggerated; and (3) points out several methodological limitations and weaknesses. The article does not, in the end, recommend jettisoning evolutionary psychology. To the contrary, its point is that evolutionary psychology is a potentially useful method among many others to help us to better understand our “moral universe.” However, evolutionary psychology will never allow us to pierce through “the illusions that evolution and culture have saddled us with” as the psychologist Steven Pinker over-promises. This is true for the simple reason that science itself is both a product of evolution and a cultural practice. The aspiration of some evolutionary psychologists to transcend evolution (nature) and culture (nurture) through science is itself a dangerous illusion. Nevertheless, evolutionary psychology’s modest findings to date are a welcome contribution to anyone interested in making better and wiser ethical decisions, business or otherwise. The more knowledge we gain about our own brains and how they functions the better. These findings, however, should be subject to the same systematic scrutiny and healthy skepticism one would apply to any moral or ethical claim regardless of its origins. That is the purpose of this article.     

Machiavelli & Modern Business: Realist Thought in Contemporary Corporate Leadership Manuals*

Niccolo Machiavelli’s teachings have never gone out of fashion; no doubt because power remains a central aspect of modern political and corporate life. The writings of this 16th century thinker seem as relevant today as they were a half millennium ago. Given the immutable nature of human beings, this is hardly surprising. What is surprising is the regular stream of monographs published in the last third of the 20th century, and reaching a crescendo in the last decade, that argue for Machiavelli’s relevance to modern management and corporate leadership. This essay will examine the structure, assumptions and conclusions of these manuals. After reviewing the manuals, this essay concludes that certain of these assumptions upon which these manuals are based are not transferable from a 16th century principality to a 21st century corporation. Not surprisingly, the teachings of these manuals concerning morality and the corporation are either inconsistent with the actual teachings of Machiavelli, or fail to acknowledge the teachings of Machiavelli most relevant to the modern corporate world. *A substantially modified version of this article was originally presented as a paper at the International Conference on Social Values held at the University of Oxford in July, 2004, and was reprinted in Samuel M. Natale, ed., The Fate of Empires: Education in a Consilient World (New York: Global Scholarly Publications, 2005). Peter J. Galie is professor of Political Science and Director of the Raichle Pre-Law Center at Canisius College. He received his PH.D. from the University of Pittsburgh in 1970. He has published numerous articles in the area of state constitutional law, two books entitled The New York State Constitution: A Reference Guide (Greenwood Press, 1991) and Ordered Liberty: A Constitutional History of New York (Fordham University Press, 1996). Professor Galie was selected as the Wilson College Olive Garvey White outstanding teacher in 1967, and was the recipient of the Kenneth L. Koessler Distinguished Professor Award, Canisius College, 1998. Christopher Bopst is an associate in the commercial litigation department at the law firm of Adorno & Yoss LLP in Miami, Florida. He received his B.A. from Canisius College in Buffalo, New York (1995) and his J.D. from Notre Dame Law School in Notre Dame, Indiana (1998). Mr. Bopst has written several articles on state constitutional law and other topics of interest to the legal community. He has also presented papers at various conferences and lectured to numerous groups about various legal issues.     

Defining ‘business ethics’: Like nailing jello to a wall

Business ethics is a topic receiving much attention in the literature. However, the term ‘business ethics’ is not adequately defined. Typical definitions refer to the rightness or wrongness of behavior, but not everyone agrees on what is morally right or wrong, good or bad, ethical or unethical. To complicate the problem, nearly all available definitions exist at highly abstract levels. This article focuses on contemporary definitions of business ethics by business writers and professionals and on possible areas of agreement among the available definitions. Then a definition is synthesized that is broad enough to cover the field of management in a sense as full as most managers might conceive of it. Phillip V. Lewis is Professor of Management and Chairman of the Department of Management Sciences at Abilene Christian University. His most important publications includeOrganizational Communication: The Essence of Effective Management, Grid (1975, 1980), andManaging Human Relations, Kent (1983).     

East Meets West: A Meta-Analytic Investigation of Cultural Variations in Idealism and Relativism

Ethics position theory (EPT) maintains that individuals’ personal moral philosophies influence their judgments, actions, and emotions in ethically intense situations. The theory, when describing these moral viewpoints, stresses two dimensions: idealism (concern for benign outcomes) and relativism (skepticism with regards to inviolate moral principles). Variations in idealism and relativism across countries were examined via a meta-analysis of studies that assessed these two aspects of moral thought using the ethics position questionnaire (EPQ; Forsyth, Journal of Personality and Social Psychology 39, 175–184, 1980). This review identified 139 samples drawn from 29 different countries, for a total sample of 30,230 respondents, and concluded that (a) levels of idealism and relativism vary across regions of the world in predictable ways; (b) an exceptionist ethic is more common in Western countries, subjectivism and situationism in Eastern countries, and absolutism and situationism in Middle Eastern countries; and (c) a nation’s ethics position predicted that country’s location on previously documented cultural dimensions, such as individualism and avoidance of uncertainty (Hofstede, Culture’s Consequences: International Differences in Work-Related Values, 1980). Limitations in these methods and concerns about the validity of these cross-cultural conclusions are noted, as are suggestions for further research using the EPQ.     

Non-convex optimal portfolio sets and constant relative risk aversion

This paper shows by example that, under constant relative risk aversion (CRRA), the set of optimal portfolios can be non-convex even in the presence of a complete set of Arrow-Debreu securities. This implies that, with exclusively CRRA investors, market models without a strong distributional assumption such as that of the capital asset pricing model cannot be tested by testing the optimality of the market portfolio, or by assuming a representative investor. This demonstration extends the key result of Dybvig and Ross [Dybvig, P. H., & Ross S. A. (1982). Portfolio efficient sets. Econometrica, 50, 1525–1546], who showed an example of non-convexity with less restrictive utility assumptions but which could not apply to the case of a complete set of Arrow-Debreu securities.     

A Stakeholder’s Perspective on Human Resource Management

In order to understand the system wherein human resource management practices are determined by the interactions of a complex system of actors, it is necessary to have a conceptual framework of analysis. In this respect, the works of scholars (Mitroff, 1983, Stakeholders of the Organizational Mind, Jessey-Bass; Freeman, 1984, Strategic Management: A Stakeholder Approach, Pitman) concerning stakeholder theory opened new perspectives in management theory. An organisation is understood as being part of a politico-economic system of stakeholders who interact and influence management practices. Each stakeholder tries to optimise and protect his interests (Frooman, 1999, Academy of Management Review 24, 191–205; Savage et al., 1991, Academy of Management Executive 5(2), 61–75). The framework of stakeholder analysis enables escape from a purely instrumental approach to HRM, and avoids reducing our understanding of conflicts within companies to mere antagonism between employees and their employers. It enables us to point out the existence of other stakeholders in the relationship. Notably, it allows for the incorporation into management theory of actors from the sphere of politics (president of the republic, government, national elected representatives – deputies and senators – and locally elected representatives – mayors and regional councillors, etc.) as well as their dependent administrations. All these actors are considered to be stakeholders who define the legal framework of firm management and guarantee the application of these laws.     

Informatics and society: Will there be an ‘information revolution’?

The claim that an information revolution is underway is scrutinized in this paper. Particular attention is given to the notions that new information technology will radically increase human choice and rationality in decision-making. The literature on informatics and technology is selectively reviewed in order to determine whether (1) the present use of technology seems to predict an increased choice and rationality in the future; (2) earlier technologies have had this effect; and (3) past social predictions of this type have proven generally correct. We reach a mixed or negative conclusion in every case. Although the possibility of an information revolution cannot be dismissed, neither can it be readily accepted at this point unless we significantly diminish what is normally meant by a ‘revolution’. Lorne Tepperman is Professor of Sociology at the University of Toronto. His most important publications are:Social Mobility in Canada (1975);Crime Control: The Urge Toward Authority (1977);The Roots of Disunity (1979), with David Ball. Originally presented at a symposium on “Computers and Society”, held at Ryerson Polytechnical Institute, Toronto, on January 30, 1984.     

Permissibility and use of options for hedging purposes in Islamic Finance

The debate concerning permissibility and use of options in Islamic finance is ongoing, and the issue is far from settled. Current analyses on this issue appear to focus on taking of unnecessary risks ( gharar), the perceived lack of a physical asset in an options contract, and the possibility of exploitation of the ignorant. To the extent that these factors are involved, options are not permitted under Islamic teachings (the Shariah). In this article, we investigate whether options may be permitted for hedging purposes in Islamic finance. We use equity options as an example in our analysis. After providing a brief overview of options markets, we review the existing literature and critically examine other work such as the religious decrees (fatwas). We also provide two examples, one each of call and put options, to illustrate the managerial issue of use of options for hedging purposes. Our analysis shows that options may be permitted for hedging purposes in Islamic finance as long as the underlying economic activities are themselves permissible (halal) from an Islamic point of view. The analysis also indicates that one of the key issues is related to unnecessary risk taking. The avoidance or reduction of such risks in hedging situations is largely dependent on the settlement and clearing function of the exchanges trading options, which effectively provides a guarantee of delivery. Mutual consent for entering into or canceling contracts and the issue of intangible assets also play a role in determining if options are permissible under the Shariah. We conclude the article by urging experts of Islamic jurisprudence to understand the theory and mechanics of options and use group ijitihad (consensus opinion of Islamic scholars) in conjunction with academics and experts in financial markets and instruments on this vital issue in contemporary finance for the benefit of the Islamic world as well as those trading with the Islamic world. © 2006 Wiley Periodicals, Inc.     

Can the HM-test be brought to an end?

A significant change seen in the new regulatory framework for communications markets regards issues of market delineation. Relevant markets according to the new regulatory framework should be defined in accordance with competition law methodology/principles, most notably the so-called Hypothetical Monopolist Test (HM-test). Our discussion points to the conceptual and practical difficulties associated with evaluating the effects of a 5–10% price increase on the costs and therefore on the profitability of a hypothetical monopolist. Applying our analysis to fixed retail voice telephony markets we show that, in the presence of scale economies, final results crucially depend on assumptions about the cost function, in particular the relation of variable to fixed costs and the resulting (competitive) margin. The latter, in turn, will depend on the time horizon that is deemed to be relevant for market delineation purposes. Overall quantitative techniques applied to carry out the HM-test rigorously on empirical grounds are highly sensible to those assumptions a priori even if one assumes that (empirical) estimates of elasticities can be derived reasonably.*The views expressed are those of the authors and do not represent those of RTR or TKK.     

Signs and Practices: Coordinating Service and Relationships

The world is full of signs (symbols, signifiers). They guide us in supermarkets, on highways and in airports. They even guide us to the right bathroom. Signs have a huge impact if they are used as logos or in advertisements. Signs also help us when we read manuals or when we use a remote control. Signs are used everywhere. Signs render service as they are “applications of skills and knowledge for the benefit of another party” (Vargo and Lusch 2004, 2008). Like all offerings signs only render service if they are used in some way. This article will argue that the usage of signs depends on the practices they are embedded in. It is argued that signs do not gain their full meaning and do not serve or create any value unless they are embedded in practices. Since signs are explicit and practices mainly implicit they are both necessary to serve and more importantly to (co-)create value. Signs and practices are two sides of the same coin so both they (and their interrelation) have to be understood in order to offer a better service.     

The Origins and Meanings of Names Describing Investment Practices that Integrate a Consideration of ESG Issues in the Academic Literature

The aim of this study was to reflect on the origins and meanings of names describing investment practices that integrate a consideration of environmental, social and corporate governance issues in the academic literature. A review of 190 academic papers spanning the period from 1975 to mid-2009 was conducted. This exploratory study evaluated the associations and disassociations of the primary name assigned to this genre of investment with variables grouped into five domains, namely Primary Ethical Position, Investment Strategy, Publication Date, Regions Covered and Periodical Type. The study indicated that papers coded as expressing a deontological ethical position were more frequently associated with the name Ethical Investment, whereas those with an ambiguous ethical position were less frequently associated with Ethical Investment. Three investment strategies (positive screening, best-in-class and cause-based investing) were unusually associated with the primary name Responsible Investment. A strong preference for the name Ethical Investment was noted in the United Kingdom, and contrasted starkly with an apparent aversion for this name in the United States. The name Ethical Investment is significantly more frequently used in journals dealing with ethics, business ethics and philosophy than in finance, economic and investment journals. Finally, the study yielded some weak hints that the name Responsible Investment might perhaps be linked to an egoist ethical position. On the basis of this, and because these have already been substantively linked through the Principles for Responsible Investment in the popular discourse, we follow the heuristic tradition set by Sparkes (Business Ethics Eur Rev 10:194–201, 2001), and propose that Responsible Investment be defined as ‘Investment practices that integrate a consideration of ESG issues with the primary purpose of delivering higher-risk-adjusted financial returns’.     

Modeling heterogeneous effective advertising stock using single-source data

This paper presents a nonlinear modeling of market response between advertising stock and direct utility with heterogeneous parameters using single-source data. We examine advertising threshold effects and measure the effective advertising stock at the individual consumer level. Two kinds of information, i.e., TV advertising exposure data and consumer’s purchase history data, are combined for the modeling. The former is used for constructing advertising stock over calendar time via heterogeneous carryover parameters and the latter is applied to the choice model. The Markov chain Monte Carlo (MCMC) method is applied to estimate these heterogeneous parameters. Compared to other possible nonlinear specifications, it is shown that the proposed threshold utility function model with discontinuity at the threshold performs better than other smooth market response models. The empirical results support the existence of an advertising threshold and suggest the pulsing or “on/off” policy for our datasets. In terms of the effective reach, implying the reach after suspending the ad exposure to investigate how it is damping out for a possible “on/off” advertising policy, the optimal “off” interval was measured to be quite short to support a high-frequency pulsing policy, because the carryover parameter as well as the difference of ad stock and threshold are not large enough for our datasets.      

Are treble damages double damages?

The antitrust laws provided for treble damages, a penalty that encourages wronged parties to bring private suit on a matter presummedly vested with a public interest. This paper demonstrates that as interpreted by the courts the treble damage penalty is only double the full welfare loss suffered by actual and potential customers if three conditions are met: 1) the commodity is produced under constant cost conditions, 2) the monopoly price is set so as to maximize profits, and 3) the demand curve is linear. The implications of relaxing these assumptions are evaluated. The analysis is illustrated with data for Wall Products Co. v. National Gypsum, 1971.     

The evolution of world trade from 1995 to 2014: A network approach

This paper employs network analysis to study world trade from 1995 to 2014. We focus on the main connective features of the world trade network (WTN) and their dynamics. Results suggest that countries’ efforts to attain the benefits of trade have resulted in an intertwined network that is increasingly dense, reciprocal, and clustered. However, these features do not correspond to a linear aggregation of the characteristics of its constituents (trade sectors). Trade linkages are distributed homogeneously among countries, but their intensity (i.e. their value) is highly concentrated in a small set of countries. The main connective features of the WTN were not affected by the 2007–2008 international financial crisis. However, we find that the crisis marks a turning point in the evolution of the WTN from a two-group (led by the US and Germany) to a three-group (led by the US, Germany, and China) hierarchical structure.     

Two Lighthouses to Navigate: Effects of Ideal and Counter-Ideal Values on Follower Identification and Satisfaction with Their Leaders

Ideals (or ideal values) help people to navigate in social life. They indicate at a very fundamental level what people are concerned about, what they strive for, and what they want to be affiliated with. Transferring this to a leader–follower analysis, our first study (n = 306) confirms that followers’ identification and satisfaction with their leaders are stronger, the more leaders match followers’ ideal leader values. Study 2 (n = 244) extends the perspective by introducing the novel concept of counter-ideals (i.e., how an ideal leader should not be) as a second, non-redundant point of reference. Results confirm that a leader’s match on ideal and on counter-ideal values have independent effects in that both explain unique variance in followers’ identification and satisfaction with their leader. Study 3 (n = 136) replicates the previous results in an experimental scenario study and provides evidence for the proposed causal direction of the underlying process. We conclude that counter-ideal values might be an additional point of reference that people use to triangulate targets above and beyond ideal values and discuss the implications of our findings for value research and management.     

Let’s Talk Rights: Messages for the Just Corporation–Transforming the Economy Through the Language of Rights

Neoliberal globalization has not yielded the results it promised; global inequality has risen, poverty and hunger are still prevailing in large parts of this world. If this devastating situation shall be improved, economists must talk less about economic growth and more about people’s rights. The use of the language of rights will be key for making the economy work more in favor of the least advantaged in this world. Not only will it provide us with the vocabulary necessary to reframe such pressing global problems and to find adequate economic solutions; it will also deliver the basis for deriving according duties and duty-bearers – the language of rights is congruent with the language of justice and as such it is inevitably and at the same time the language of obligations. The language of obligations exposes the multinational corporation as one of the main agents of justice in the global economy. Taking distributive justice as a starting point for reflection, a consistent derivation of the multinational’s moral obligations must focus on capabilities rather than on causality. This will lead to a shift from merely passive to active duties and accordingly to a stronger emphasis on the corporation’s contribution to the realization of positive rights. Biography: Florian Wettstein is an assistant professor in the Department of Ethics and Business Law at University of St.␣Thomas. Before that, he taught in the Business and Society Program at York University (Toronto). Also, he was a research associate at the Institute for Business Ethics at the University St. of Gallen (Switzerland), a visiting scholar at Carroll School of Management at Boston College, and a research fellow in the Program on Human Rights and Justice at Massachusetts Institute of Technology (MIT).