Thursday, March 02, 2006

Twelve Economists Get Into A Van

Last week I had the pleasure of attending the Alexander Brody Lecture in Economics at Yeshiva University. The speaker was Dr. Morris Altman, a leading behavioral economist and the chairman of the economics department at Saskatchewan University. R. Aaron Levine, a Yashar author and chairman of the economics department at Yeshiva University, was kind enough to invite me to the lecture.

Dr. Altman's main theme was that while neo-classical economic theory assumes that firms must act in their own best interests and that those that do not will not survive in a free market. Therefore, firms that choose to act ethically, e.g. allow unionization, will have higher costs and therefore will be overtaken by competitors. Altman argued that there are benefits to acting ethically, including higher morale and the creation of products that ethically-minded customers will seek out. The innovation here is not necessarily the concept but the incorporation of it into economic theory. (See the abstract for a recent article of his here)

He told the following story that I found amusing:

He was at an economics conference and, together with about eleven other economists, got into a van to go to the airport. During the ride, the driver told the economists that there was recently a shortage of a certain item and his friend was the only person in town who had it in stock. This friend decided not to raise the price. What do the economists think of that?

Most of the economists said that this friend was foolish and acted irrationally. A rational businessperson would utilize that opportunity for the benefit of his business. Dr. Altman disagreed and said that this friend had acted ethically and his customers would appreciate that. Presumably, the customers would remember this incident in the future and show preference for his store over competitors'.
Personally, I'm surprised that with twelve economists answering a question there were only two views. I would have expected at least thirteen opinions.

I'll see if I can get a talmid hakham to present the halakhic view of this situation: what is permissible and what is laudable. I can think of at least one talmudic precedent.

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