Morality and Moral Hazard- An economic cost or an opportunity? “ A good decision is based on knowledge, not on numbers”- Plato
A majority of economic decision makers, be it the CEO/MD of a company or the President of a country, usually decide based on hard, cold data and facts. These decisions are assumed to be holistic in their scope and always directed towards achieving the terminal goals of the organization or country. However, an important factor to be taken into consideration in all these decisions is the moral cost. It is a cost as the decisions which are made using a moral standpoint as a relatively higher weightage compared to pure economics/finance usually reduce the actual economic profits of the entity. The decisions made by managers based on the factual and financial data may lead to greater profits and growth, but the moral costs need to be factored to ensure inclusive growth. Morality focuses primarily on what is commonly referred to as duty-based morality (behaving the right way out of a sense of duty) as opposed to outcome-based morality (behaving in a way that achieves the best outcomes). This does not mean we ignore economic outcomes.1 Before companies were the economic decision makers in the society, the kingdoms and individuals used other means to decide the correctness of their economic decision in terms of morality. These means would have been religion, societal norms and personal beliefs. Religions usually place restrictions and make greed a sin to ensure morality is not overcome. A society’s acceptance or rejection of morally dubious decisions usually dictates what constitutes a moral or immoral decision. However, the same society can paint a type of activity as morally wrong despite its actual utility to the society. For example, capitalism has been considered as an ideal demonstration of market forces which Adam smith alluded to. The capitalistic approach always strives for higher profits and greater market share. These activities...
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