Integrative Social Contract Theory and Institutional Brokerage Commission Rebates
D. Bruce Johnsen
George Mason University - School of Law; PERC - Property and Environment Research Center
February 24, 2010
George Mason Law & Economics Research Paper No. 10-11
“Mutual Funds” in Finance Ethics: Critical Issues in Theory and Practice, John R. Boatright, ed., John Wiley & Sons, Inc., Forthcoming
This paper provides an Integrative Social Contract Theory analysis of the ethics of institutional brokerage commission rebates - soft dollars and directed brokerage - focused on transaction cost economics. Brokerage commission rebates are a form of vertical arrangement subject to the same economic analysis scholars and courts have used in the Antitrust setting to find that consumers often benefit from vertical arrangements. My analysis shows that institutional brokerage rebates, often condemned as kickbacks, payola, or commercial bribery, likely benefit mutual fund investors once the problem of brokerage quality assurance is recognized. According to Integrative Social Contract Theory they appear to be ethical forms of economic organization.
Number of Pages in PDF File: 39
Keywords: Coase, community norms, competitive federalism, diversified portfolio, Donaldson, Dunfee, economic organizations, evolutionary competitive forces, financial market commentators, Massachusetts Financial Services Company, moral free space, open-end funds, politicians, SEC, securities regulators
JEL Classification: A13, J41, K12, L14
Date posted: February 26, 2010
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