Business ethics in a competitive market

Consequentialist reasoning and neoclassical assumptions about perfectly competitive markets encourage business school faculty and students to overlook the role of ethics in a market system. In a perfectly competitive economy, self-interest suffices to bring about a desirable outcome. However, discrepancies between an economist's assumptions and the realities of a market economy establish a need for business ethics. This essay, written as a lecture for MBA students, first reviews Pareto optimality as an argument in favor of market allocations. It then uses the discrepancies between actual and hypothetical markets to derive a Rawlsian duty of civility. This neoclassical case for business ethics requires individuals to avoid exploiting the defects that are inevitable in any social structure.Julianne Nelson is an Assistant Professor of Justice at the School of Public Affairs in the American University in Washington, D.C. She has also taught at the Stern School of Business of the New York University and at the Ecole Superieure de Commerce in Tours, France. Her publications have appeared in theInternational Economic Review, Economics Letters, The Journal of Regulatory Economics, Japan and the World Economy, The Journal of Business Ethics andEconomics and Philosophy.Editorial note: Date of acceptance July 4, 1991. This article follows the article published in Volume 11 (4), pp. 317–320.My thanks go to Tom Donaldson, Bob Lindsay and Kerry Whiteside for their helpful comments on earlier versions of this work. This research was supported by a grant from the Rundin Foundation.