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Kantian ethics within transaction cost economics

Author

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  • Xavier Duran
  • Patrick McNutt

Abstract

Purpose - The purpose of this paper is twofold: first to add to the debate on trust and opportunism within transaction cost economics (TCE) and second to describe a partial solution, a code of ethical practice (CoEP) originating in Kant's moral philosophy. Design/methodology/approach - The methodology has centred on ethical values of right and wrong within an organisation in terms of fulfilling one's duty. Findings - The contracting or exchange objective in any transaction is to arrive at a mutually satisfactory outcome, an equilibrium point. With opportunism, a free rider problem may well arise; if so, a partial solution emerges. This has to be avoided. In this paper, the authors focus on simple contracts as a solution, that is, an agreement‐as‐bargain in a CoEP not made in deed but made in reason, so that each party to the arrangement, has “dignity”. The avoidance of an ethical dilemma in not fulfilling one's duty is linked to the role of trust in TCE. Practical implications - It is argued that the decision not to engage in opportunistic behaviour, for example, by any one individual, may be rooted in a personal sense of duty or influenced by the ethical values and beliefs embedded within the culture of the organisation or the firm. Management may therefore decide not to abuse their discretionary power; workers may opt not to shirk. Originality/value - The paper builds on a new approach to understand governance and ethics insofar as a firm teaches people morality. This CoEP supports the role of trust in modern companies and links across to the literature on TCE. The paper should be of value to shareholders, workers and management, trade unions and commentators on the theory of the firm.

Suggested Citation

  • Xavier Duran & Patrick McNutt, 2010. "Kantian ethics within transaction cost economics," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(10), pages 755-763, August.
    • Handle: RePEc:eme:ijsepp:v:37:y:2010:i:10:p:755-763
    DOI: 10.1108/03068291011070426
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    References listed on IDEAS

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    1. Patrick A. McNutt, 2005. "Law, Economics and Antitrust," Books, Edward Elgar Publishing, number 1463.
    2. William G. Ouchi, 1979. "A Conceptual Framework for the Design of Organizational Control Mechanisms," Management Science, INFORMS, vol. 25(9), pages 833-848, September.
    3. Patrick A. McNutt & Charlie A. Batho, 2005. "Code of ethics and employee governance," International Journal of Social Economics, Emerald Group Publishing, vol. 32(8), pages 656-666, August.
    4. William M. Dugger, 1996. "The Mechanisms of Governance," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(4), pages 1212-1216, December.
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    Cited by:

    1. Franklin M. Lartey, 2020. "Ethical Challenges of Complex Products: Case of Goldman Sachs and the Synthetic Collateralized Debt Obligations," International Business Research, Canadian Center of Science and Education, vol. 13(6), pages 115-115, June.
    2. Patrick A. McNutt, 2010. "Edited ethics: corporate governance and Kant's philosophy," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 37(10), pages 741-754, August.

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