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for their willingness to share their efforts, knowledge and insights into matters relevant to this paper, and especially Kevin Murphy for his insightful challenges, questions, and comments on this paper, and his willingness to share with us his knowledge, data and exhibits relevant to executive compensation. We acknowledge our students and seminar participants for their contribution to us, in particular the critical lessons about the viability of the material and the methodology for mastering it. We are also indebted to two anonymous referees for their valuable comments, criticisms, and suggestions. All errors are our responsibility. Jensen has received financial support from the Harvard Business School Division of Research. Both authors are associated with the non-profit Erhard-Jensen Ontological / Phenomenological Initiative (from which the authors receive no financial benefit other than a reimbursement of travel expenses when dealing with the Initiative's activities). The purpose of the Initiative is to stimulate and support research into and the application of the ontological / phenomenological perspective on human nature and behavior, and the impact of such a perspective on life, living, and self. Various management consulting and public program delivery firms (some from which the authors derive a financial benefit) utilize some of the ideas presented in this paper in their consulting activities or programs. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.© 2014 by Werner Erhard and Michael C. Jensen. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. ABSTRACTThe seemingly never ending scandals in the world of finance with their damaging effects on value and human welfare (that continue unabated in spite of all the various efforts to curtail the behavior that results in those scandals) argues strongly for an addition to the current paradigm of financial economics. We summarize here our new theory of integrity that reveals integrity as a purely positive phenomenon with no normative aspects whatsoever. Adding integrity as a positive phenomenon to the paradigm of financial economics provides actionable access (rather than mere explanation with no access) to the source of the behavior that has resulted in those damaging effects on value and human welfare, thereby significantly reducing that behavior. More generally we argue that this addition to the paradigm of financial economics can create significant increases in economic efficiency and productivity.

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for their willingness to share their efforts, knowledge and insights into matters relevant to this paper, and especially Kevin Murphy for his insightful challenges, questions, and comments on this paper, and his willingness to share with us his knowledge, data and exhibits relevant to executive compensation. We acknowledge our students and seminar participants for their contribution to us, in particular the critical lessons about the viability of the material and the methodology for mastering it. We are also indebted to two anonymous referees for their valuable comments, criticisms, and suggestions. All errors are our responsibility. Jensen has received financial support from the Harvard Business School Division of Research. Both authors are associated with the non-profit Erhard-Jensen Ontological / Phenomenological Initiative (from which the authors receive no financial benefit other than a reimbursement of travel expenses when dealing with the Initiative's activities). The purpose of the Initiative is to stimulate and support research into and the application of the ontological / phenomenological perspective on human nature and behavior, and the impact of such a perspective on life, living, and self. ABSTRACTThe seemingly never ending scandals in the world of finance with their damaging effects on value and human welfare (that continue unabated in spite of all the various efforts to curtail the behavior that results in those scandals) argues strongly for an addition to the current paradigm of financial economics. We summarize here our new theory of integrity that reveals integrity as a purely positive phenomenon with no normative aspects whatsoever. Adding integrity as a positive phenomenon to the paradigm of financial economics provides actionable access (rather than mere explanation with no access) to the source of the behavior that has resulted in those damaging effects on value and human welfare, thereby significantly reducing that behavior. More generally we argue that this addition to the paradigm of financial economics can create significant increases in economic efficiency and productivity.4 It follows that as integrity declines, the opportunity for performance declines.5 This leads to the empirically refutable proposition that, ceteris paribus, as integrity declines, performance declines. e. Actual Access To The Source Of Out-Of-Integrity BehaviorWe identify eleven factors that contribute to what we call the "Veil of Invisibility" that hides the actual source of out-of-integrity behavior (see Section 3.h, p. 19 below). Because the actual source of out-of-integrity behavior is almost always hidden, the damaging effects of outof-integrity behavior are attributed to sources other than out-of-integrity behaviorthat is, these damaging effects are attributed to false causes. Common examples of false causes that explain the factors that generate the actions that result in these damaging effects are properties inherent in certain individuals or organizationsthat is, a person or an organization is immoral, gree...

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