What is the bottom line on morals?

Economics, Values and Organisation
May 14, 1999

Positivism had a longer hold on economics than other social sciences. Values rarely held any interest for economists other than as preferences in a rational, usually self-interested, utility function. But the tide has turned and, as this collection demonstrates, economists find it a central task to explain human values and why they are efficient.

The book divides into five parts. The first considers the formation and evolution of social norms and values. Robert Sugden and Ken Binmore take a similar line, but both are rather hard to understand. Sugden admits that he needs a new form of game theory, but his chapter suggests only the vaguest outline. He wants to develop a theory of normative expectations where people are motivated by a desire to meet other people's expectations about them. He tries to explain the assignment of de facto property rights through a hawk-dove game where players respect rights through their expectations that others will respect them. But it is axiomatic in game theory that everything that matters is contained in the utility payoffs, so strategy is determined by the probabilities attached to the strategies of others.

Binmore's chapter is difficult because it is not really a stand-alone essay but a shortened chapter from his monumental two-volume attempt to explain the social contract through the development of morality through evolutionary game theory. Although his chapter is titled "A utilitarian theory of political legitimacy", in reality it is an attempt to expound an evolutionary account of morality where our innate sense of fairness ensures that in the short term we find solutions that may be rationally justified only in the long term. Binmore wishes to justify a more Rawlsian position, but underpinned not by appeals to fairness but the realities of bargaining, which shape people's attitudes towards what they consider fair.

The second part is about the generation of values through families and communities. Timur Kuran's account of moral overload is fascinating. He sees values as judgements about preference orderings or about the choices we make; they are standards of rightness in character or conduct. This suggests a binary system for evaluating options - our preferences for them and our appraisal of our own preferences. Constraints that regulate choice do not restrain values: this is "moral overload". The evolutionary function of values is to generate principled behaviour enabling the generation of trust. But why have values and preferences? Values that contextualised, such as "Try to save a drowning person but only when the risk is modest", invite self-interested abuse making principled behaviour harder to judge. Absolute values prevent opportunism, but those who interpret them flexibly will have greater genetic fitness.

In the final section, Kuran asks if it is right to try to preserve the cultures of dominated groups when the function of culture is to homogenise, simplify and rank our values. To try to preserve a threatened culture may defeat the reason for having one.

The third part is concerned with social norms and culture. Susan Rose-Ackerman examines the moral status of transactions. We label some transactions "bribery", others "gifts". In one society, a given transfer may be legitimate, in another corrupt. Different cultural systems affect their economic and political performance, affecting organisational behaviour just as institutions shape values. Social capital may facilitate corrupt collusive relations between actors, and Rose-Ackerman highlights the tension between personal ties and impersonal agency relationships.

Part four examines the generation of trust through organisational incentives. Mark Schotter demonstrates that the norms that workers develop between each other are just as important as management created work incentives. Russell Hardin examines the relationship of incentives to work effort, comparing material incentives with personal commitments. In traditional public administration, the latter are thought to operate, but economists argue we should use rational self-interest in explaining both private and public sector. To some extent the two models, while at first sight contradictory, are not necessarily so. They may be concerned with different aspects of a bureaucrat's behaviour. Why should a disinterested tax official do anything other than her best to calculate a business's tax return? She may take personal pride in a good job done. That is not to say she may not sometimes shirk, nor that she may deliberately make mistakes. But she may as well do the job well as badly. The economic approach recommends we set up a public organisation to try to make officials as disinterested as possible and get the incentives right to see they work efficiently.

The final section considers the market. Bruno Frey focuses on the crowding-out effect, where marketisation may make generosity and charity less likely. Robert Lane suggests modernisation and economic growth do not make for a happier society. He says the "offerings of the market no longer satisfy, not because the payoff is not large enough but because it is denominated in the wrong currency".

This book has a good introduction by the editors and a conclusion by Douglass North, who says we must understand the interaction of institutions and behaviour to understand social change and development. The interesting essays demonstrate the amount of work needed to comprehend the development of morality. I think we understand the outlines of how institutions and moralities develop as the equilibria of games, but whether economics, as opposed to say, chemistry or biology, can really explain how they motivate, I am not so sure. Economics seems only to describe, but maybe one day it will satisfy as explanation.

Keith Dowding is reader in public choice and public administration, London School of Economics.

Economics, Values and Organisation

Editor - Avner Ben-Ner and Louis Putterman
ISBN - 0 521 58087 0
Publisher - Cambridge University Press
Price - £55.00
Pages - 523

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