Economics and Ethics
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Economics and Ethics An Introduction Amitava Krishna Dutt and Charles K. Wilber
Amitava Krishna Dutt and Charles K. Wilber 2010 Softcover reprint of the hardcover 1st edition 2010 978-0-230-57595-0 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-36592-0 ISBN 978-0-230-27723-6 (ebook) DOI 10.1057/9780230277236 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Dutt, Amitava Krishna Economics and ethics : an introduction / Amitava Dutt, Charles K. Wilber. p. cm. 1. Economics Moral and ethical aspects. I. Wilber, Charles K. II. Title. HB72.W54 2010 174 dc22 2010007407 10 9 8 7 6 5 4 3 2 1 19 18 17 16 15 14 13 12 11 10
For Harolyn and Mary Ellen
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Contents List of Figures and Tables Preface viii ix Part I Introduction and Background 1 Introduction 3 2 Economics Without Ethics? 17 3 Approaches to Ethics and Justice 35 Part II Ethical Values, Individual Behavior, and Social Interactions 4 Individuals, Norms, and Ethical Values 59 5 Social Interactions and Ethical Values 79 6 Markets and Ethical Values 95 Part III Ethical Issues for Evaluating Economies and Economic Policy Analysis 7 The Morality of Markets and Government Intervention 117 8 Individual Preferences, Efficiency, and Cost-Benefit Analysis 141 9 Production, Income, and Economic Growth 158 10 Fairness, Distribution, and Equality 175 Part IV Applications and Conclusion 11 Ethics and Applied Economics 205 12 Conclusion 230 Notes 235 References 250 Index 259 vii
List of Figures and Tables Figures 4.1 The optimizing consumer 62 6.1 Supply and demand in the labor market 104 8.1 Supply and demand 143 8.2 Supply and demand with price ceiling 144 8.3 Utility possibility frontier and social welfare function 146 10.1 The Lorenz curve 177 10.2 Utilitarian argument for equality 191 11.1 Effect of a minimum wage in a supply demand model 220 Tables 5.1 A simple game 83 5.2 A game with altruistic individuals 88 5.3 A game with partially altruistic individuals 89 5.4 A game with individuals with different levels of altruism 89 5.5 A game without envy 90 5.6 A game with envy 90 6.1 Relation between markets and ethical values 113 viii
Preface This book focuses on the relation between ethics and economics, both in economic analysis and economic policy. To do so, it makes three simple points. First, economics necessarily involves ethics, and economists cannot engage in economic analysis and giving advice on economic policy without making value judgments. Second, individuals have ethical values that shape their behavior and affect what happens in the economy as a result of their interactions. Third, ethical values are involved in evaluating how an economy is doing and in choosing and appraising economic policies. The rest of this book develops these three points. Our aim in writing this book is to encourage people who are interested in economic issues including students and professional economists who are not familiar with them to take ethics more seriously in thinking about the economy. We believe that many people interested in economics, including professional economists, pay insufficient attention to ethical and moral issues, and economics is the worse for that. Ours is not the first book that deals with the relation between ethics and economics. There are a few excellent treatments of the subject, including a short book by Sen (1987) and the longer work by Hausman and McPherson (1996, 2006). While we have drawn heavily on these and other works, we have tried to make this book different from them in several ways. First, we have tried to provide a fairly comprehensive coverage of the main issues that relate economics and ethics, rather than focus on some key foundational ideas. Second, we have tried to avoid surveying the field with all its complexity and detail, focusing instead on what we believe are some of the central issues relating economics and ethics. Third, we have tried to relate ethical issues closely to economic analysis more narrowly defined such as microeconomic and macroeconomic analysis and income distribution theory. Our purpose in these decisions is to make the material more accessible to a wider audience than professional economists and philosophers. The gestation period for this book has been long. The final result has been much enriched by discussion and debate with, and comments from, many colleagues and students. We particularly wish to thank David Betson, George DeMartino, Georges Enderle, Ronald Hoksbergen, ix
x Preface Ken Jameson, Alasdair MacIntyre, Kali Rath, Jaime Ros, Jim Sterba, Jonathan Wight, and many undergraduate students in the economics and ethics course offered at Notre Dame. We are also grateful to the production staff at Palgrave-Macmillan for their speedy and efficient work in seeing the book to its completion. Finally, we would like to thank our families for their understanding, good humor and support, and for occasional discussions on the subject of this book and suggestions on the manuscript.