Self-Interest vs. Greed and the Limitations of the Invisible Hand
American Journal of Economics and Sociology, Forthcoming
24 Pages Posted: 4 Feb 2011 Last revised: 2 Jun 2012
Date Written: September 30, 2011
Markets can only function well if there is an appropriate legal framework to restrict the behavior of market participants; however, the legal framework is inevitably inadequate. A “greedy” market participant that seeks to gain at the expense of others can usually find some way to do so. This might be done within the legal framework, or it might involve a violation of the law that is difficult to enforce. Since the legal system does not generally guarantee that markets can function efficiently, there is a role for other institutions to foster a more enlightened self-interest as a social norm and thus improve efficiency.
Keywords: Efficiency, Ethics, Regulation
JEL Classification: B52, K20, Z13
Suggested Citation: Suggested Citation