Putting Integrity into Finance: A Purely Positive Approach

84 Pages Posted: 5 Apr 2012 Last revised: 29 Nov 2015

See all articles by Werner Erhard

Werner Erhard


Michael C. Jensen

Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit

Multiple version iconThere are 3 versions of this paper

Date Written: November 27, 2015


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 a virtue (a normative phenomenon) the actual cause of the damaging effects of out-of-integrity behavior are hidden, resulting in assigning false causes to those effects. This keeps the actual source of these damaging effects 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 source of these effects continue to be repeated. This new model of integrity makes the actual source of the damage available for all to see, and therefore to act on.

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

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

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

Suggested Citation

Erhard, Werner and Jensen, Michael C., Putting Integrity into Finance: A Purely Positive Approach (November 27, 2015). 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: https://ssrn.com/abstract=1985594 or http://dx.doi.org/10.2139/ssrn.1985594

Michael C. Jensen (Contact Author)

Harvard Business School ( email )

Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484

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National Bureau of Economic Research (NBER) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Harvard University - Accounting & Control Unit ( email )

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Boston, MA 02163
United States

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