Fairness, Character, and Efficiency in Firms

35 Pages Posted: 7 May 2001

See all articles by Robert D. Cooter

Robert D. Cooter

University of California, Berkeley - School of Law

Melvin A. Eisenberg

University of California, Berkeley - School of Law

Abstract

Agency problems beset firms and prompt opportunistic behavior by employees. Opportunistic behavior redistributes value, whereas cooperative behavior creates value. Firm-specific fairness norms typically promote the firm's efficiency by increasing cooperation and decreasing opportunism. Firm-specific fairness norms best promote efficiency when supported by reputation effects and when the firm's agents internalize the norms. People who internalize norms acquire good character. We will develop the concept of "good agent character", by which we mean agent character that serves the firm's profitability by embodying the firm's fairness norms. Good agent character conveys an advantage to superiors and subordinates in forming cooperative relations with other people who can read character.

JEL Classification: corporate governance

Suggested Citation

Cooter, Robert D. and Eisenberg, Melvin A., Fairness, Character, and Efficiency in Firms. Available at SSRN: https://ssrn.com/abstract=268990 or http://dx.doi.org/10.2139/ssrn.268990

Robert D. Cooter (Contact Author)

University of California, Berkeley - School of Law ( email )

Berkeley, CA 94720-7200
United States
510-642-0503 (Phone)
510-642-3767 (Fax)

Melvin A. Eisenberg

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States
510-642-1799 (Phone)
510-643-2672 (Fax)

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