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Kantian ethics within transaction cost economics

Xavier Duran (School of Business and Humanities, Limerick Institute of Technology, Limerick, UK)
Patrick McNutt (Manchester Business School, Manchester, UK)

International Journal of Social Economics

ISSN: 0306-8293

Article publication date: 31 August 2010

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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.

Keywords

Citation

Duran, X. and McNutt, P. (2010), "Kantian ethics within transaction cost economics", International Journal of Social Economics, Vol. 37 No. 10, pp. 755-763. https://doi.org/10.1108/03068291011070426

Publisher

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Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

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