Do markets promote unethical behavior? This paper studies how the replacement logic impacts ethical behavior when suppliers are driven by both profit and ethical concerns. To this purpose, it proposes a unified model encompassing the three possible wedges between client and social demands: internalities, externalities, and shrouded attributes. When supplier fees are constrained, a good approximation of many medi- cal, apps and franchising environments, unethical behavior is more likely, the higher the fee and the more competitive the market. In contrast, with market- determined fees, supplier concentration has no impact on ethical behavior as less competition also means higher fees. More ethical firms are likely to com- mand a lower (higher) market share under constrained (market-determined) fees. The replacement logic also affects ethical behavior in organizations. Of par- ticular interest is the design of managerial incentives by owners to align ob- jectives despite differences in ethical concerns. Corporate choices are shown to be more ethical than owners would wish if and only if agents enjoy rents. The paper then concludes with a study of private, public, and industry (self-) regulations.
Jean Tirole et Mathias Dewatripont, Incentives and Ethics: How Markets and Organizations Shape our Moral Behavior, décembre 2019.