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The Indirect Ethics of AIG’s ‘Backdoor Bailout’

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  • Daniel G. Arce

    (University of Texas at Dallas)

  • Laura Razzolini

    (Virginia Commonwealth University)

Abstract

We experimentally assess the ethics of the U.S. government’s indirect bailout of the bank counterparties of American International Group during the 2008 financial crisis. When the indirect bailout is jointly compared with a counterfactual where the government directly bails out the banks, subjects judge the indirect bailout to be far more unethical. On the other hand, when the two scenarios are judged separately, subjects consider a direct bailout of banks to be more unethical. This suggests that ethical judgments of indirect versus direct action exhibit a type of preference reversal that is dependent upon whether the evaluation mode is joint or separate. The pedagogical and policy implications of this preference reversal are discussed.

Suggested Citation

  • Daniel G. Arce & Laura Razzolini, 2018. "The Indirect Ethics of AIG’s ‘Backdoor Bailout’," Journal of Business Ethics, Springer, vol. 148(1), pages 37-51, March.
    • Handle: RePEc:kap:jbuset:v:148:y:2018:i:1:d:10.1007_s10551-016-3029-6
    DOI: 10.1007/s10551-016-3029-6
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    References listed on IDEAS

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    1. Arce, Daniel G., 2013. "Principals’ preferences for agents with social preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 90(C), pages 154-163.
    2. Paharia, Neeru & Kassam, Karim S. & Greene, Joshua D. & Bazerman, Max H., 2009. "Dirty work, clean hands: The moral psychology of indirect agency," Organizational Behavior and Human Decision Processes, Elsevier, vol. 109(2), pages 134-141, July.
    3. Adenekan Dedeke, 2015. "A Cognitive–Intuitionist Model of Moral Judgment," Journal of Business Ethics, Springer, vol. 126(3), pages 437-457, February.
    4. Clive Boddy, 2011. "The Corporate Psychopaths Theory of the Global Financial Crisis," Journal of Business Ethics, Springer, vol. 102(2), pages 255-259, August.
    5. Lucas C. Coffman, 2011. "Intermediation Reduces Punishment (and Reward)," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 77-106, November.
    6. Dawn Elm & Tara Radin, 2012. "Ethical Decision Making: Special or No Different?," Journal of Business Ethics, Springer, vol. 107(3), pages 313-329, May.
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    Cited by:

    1. Dancsik, Bálint, 2020. "Rendszerszintű kockázat rendszerszintű erkölcs nélkül. Kiegészítések a pénzügyi válságok etikai magyarázatához [Systemic risk without systemic ethics. Supplements to the ethical explanation of fina," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 225-243.

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