Ethics, Welfare, and Markets: An Economic Analysis

Abstract

The present article examines society's welfare when goods with identical physical attributes can be produced using two alternative technologies, one of them less ethically desirable but less expensive for at least some producers. For the scenario where identification costs must be borne by producers and consumers of the high-quality good, the outcome under unregulated markets is identical to the optimal solution of a central planner constrained to neither ban the undesirable technology nor segregate the low-quality good. However, under certain circumstances the unregulated market equilibrium may be improved upon by government intervention that shifts the burden of identification costs to the producers of the low-quality good, or which bans the production of the low-quality good. The optimal intervention needs to be determined case-by-case and depends on consumer preferences, relative production costs, and relative costs of identification and fraud prevention.

Corporate Social Responsibility and Horizontal Differentiation in Imperfect Competitive Markets with Global Warming Effects

“…In addition, and because of the presence of asymmetric information, neither the government nor the market take effective actions to solve the problem. In this sense, Lence and Hayes, 2010, argue that "the decentralized competitive market equilibrium will never lead to a situation where goods produced with the undesirable technology are voluntary identified" (p.1108). In other words, these activities go on unregulated and the externality and its consequent negative effects persist.…”