Abstract

http://ssrn.com/abstract=1985594
 
 

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Putting Integrity into Finance: A Purely Positive Approach


Werner Erhard


Independent

Michael C. Jensen


Social Science Electronic Publishing (SSEP), Inc.; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

September 23, 2014

Harvard Business School NOM Unit Working Paper No. 12-074
Barbados Group Working Paper No. 12-01
European Corporate Governance Institute (ECGI) – Finance Working Paper No. 417/2014

Abstract:     
The seemingly never ending scandals in the world of finance with their damaging effects on value and human welfare argue 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 will create significant increases in economic efficiency, productivity, and aggregate human welfare.

Because integrity has generally been treated as nothing more than a virtue (a normative phenomenon), the damaging effects of out-of-integrity actions are assigned to causes other than out-of-integrity actions – that is, these damaging effects are assigned to false causes. This makes the actual source of the damaging effects of out-of-integrity actions invisible to us. As a result, in spite of all the attempts to police the false causes of these damaging effects, the out-of-integrity actions that are the actual source of these effects continue to be repeated.

Integrity as we define it (or the lack thereof) on the part of individuals or organizations has enormous economic implications (for value, productivity, quality of life, etc.). Indeed, integrity is a factor of production as important as labor, capital, and technology. Without a clear, concise and actionable definition of integrity, economics is far less powerful than it can be. So too finance and management.

Number of Pages in PDF File: 79

Keywords: Integrity, Fraud, Scandals, Morality, Ethics, Legality, Ontology, Efficiency

JEL Classification: G3, A12, B21, D21, D23, G3, G19, L14, M10, M21

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Date posted: April 5, 2012 ; Last revised: October 7, 2014

Suggested Citation

Erhard, Werner and Jensen, Michael C., Putting Integrity into Finance: A Purely Positive Approach (September 23, 2014). Harvard Business School NOM Unit Working Paper No. 12-074; Barbados Group Working Paper No. 12-01; European Corporate Governance Institute (ECGI) – Finance Working Paper No. 417/2014. Available at SSRN: http://ssrn.com/abstract=1985594 or http://dx.doi.org/10.2139/ssrn.1985594

Contact Information

Werner Erhard
Independent
HOME PAGE: http://www.wernererhard.net
Michael C. Jensen (Contact Author)
Social Science Electronic Publishing (SSEP), Inc. ( email )
7858 Sanderling Road
Sarasota, FL 34242
United States
617-510-3363 (Phone)
305 675-3166 (Fax)
HOME PAGE: http://ssrn.com/author=9

Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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