Ethics & Values in Economics
Advanced University‑Level Study Notes
(B.A. Economics – Skill Enhancement – MIT‑style)
Table of Contents
- Foundations of Ethics
1.1 First Principles of Moral Reasoning
1.2 Major Moral Theories
1.3 Value Theory & Multi‑Criteria Analysis - Ethics in Economic Theory & Practice
2.1 Positive vs. Normative Economics
2.2 Ethical Assumptions in Classical Models
2.3 Market Failures & Moral Hazard
2.4 Justice, Fairness & Rawlsian Analysis
2.5 Behavioral Economics & Ethics - Values & Value Judgements
3.1 Individual, Cultural & Institutional Values
3.2 Pluralism & Value Conflict
3.3 Value‑Based Policy Analysis - Edge Cases & Contemporary Challenges
4.1 Corporate Social Responsibility vs. Philanthropy
4.2 Intergenerational Justice & Climate Change
4.3 Algorithmic Bias & AI‑Driven Markets - Deeper Theory & Formal Models
5.1 Social Welfare Functions & Pareto Efficiency
5.2 Rawlsian Maximin & the Difference Principle
5.3 Mechanism Design with Fairness Constraints
5.4 The Principal‑Agent Problem & Moral Hazard - Case Studies
6.1 2008 Financial Crisis – Incentives & Ethics
6.2 Microfinance & Poverty Traps – Value Alignment
6.3 Cap‑and‑Trade for Pollution – Distributional Ethics - Challenging Problem & Solution Outline
Key Learning Objectives
- Understand ethics from first principles and apply them rigorously in economic contexts.
- Critically evaluate ethical assumptions underlying standard economic models.
- Develop and analyze formal mechanisms that balance efficiency, incentive compatibility, and fairness.
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1. Foundations of Ethics
1.1 First Principles of Moral Reasoning
| Principle | Description | Why it Matters in Economics |
|---|---|---|
| Rationality | Moral judgments should be derived from coherent, logical reasoning. | Economic models rely on rational choice; ethics must extend this rationality to non‑economic outcomes. |
| Autonomy | Individuals should be respected as rational agents capable of making choices. | Policies that undermine autonomy (e.g., paternalism) can distort market outcomes. |
| Justice | Fair distribution of benefits and burdens. | Central to welfare economics and policy design. |
| Beneficence | Obligation to promote well‑being. | Drives charitable interventions and public goods provision. |
| Non‑maleficence | Obligation to avoid harm. | Relevant for externalities, information asymmetries, and market manipulation. |
First‑Principles Thought Experiment
Consider a market where a firm can choose between two pricing schemes: a high price that maximizes profit or a low price that reduces consumer surplus. The rational agent maximizes profit; the moral agent must also consider consumer welfare. Which principle should guide the firm?
1.2 Major Moral Theories
| Theory | Core Tenets | Application to Economics | Representative Works |
|---|---|---|---|
| Consequentialism / Utilitarianism | The rightness of an action depends on its outcomes; maximize aggregate utility. | Welfare economics, cost–benefit analysis. | Bentham (1789), Mill (1863), Rawls (1971). |
| Deontology | Moral duties are independent of consequences; duties like honesty, fairness. | Contractualism, rights‑based policy analysis. | Kant (1785), Rawls (1971). |
| Virtue Ethics | Focus on character traits; virtues like honesty, fairness. | Corporate culture, ethical leadership. | Aristotle (350 BCE), Aquinas (1265). |
| Care Ethics | Emphasizes relationships and care; context‑dependent judgments. | Labor relations, welfare state design. | Tronto (1993). |
| **Social Contract Theory |