Nobel laureate considers effect of markets on corporate morality

October 28, 2021

Jean Tirole

Jean Tirole, recipient of the 2014 Nobel Prize in Economics, delivered a special virtual keynote presentation – titled “Markets and Morality” – at Western Law on Oct. 26.

In his lecture, Tirole, honorary chairman of the Foundation JJ Laffont-Toulouse School of Economics (TSE) and scientific director of TSE-Partnership, addressed what he referred to as a “nagging question”: Does the market weaken our moral compass?

Drawing on his recent work with Mathias Dewatripont, Tirole considered not just whether, but how exactly, the nature of competition affects the market’s morality.

He offered some surprising conclusions.

Contrary to a widespread intuition that competitive pressures on business inevitably lead those businesses to cut ethical corners, he explained why competitive pressures on business actors will not, in fact, erode moral behaviour, at least in two important contexts: first, where prices are flexible; and second, where prices are fixed but where moral actions affect cost, but not demand, for a business’s products or services.

He then considered the implications of his work for corporate social responsibility (CSR) and ESG (environmental, social and governance) criteria, analyzing three competing views often advanced to justify the corporate pursuit of CSR goals, rather than the single-minded pursuit of maximizing profits.

Those three views he characterized as (a) the “win-win” or “doing well by doing good” perspective; (b) the view of the corporation as an instrument of “delegated philanthropy”; and (c) “insider-initiated corporate philanthropy.” The first view, he suggested, was ultimately just an alternative version of profit maximization. The other two views were subject to free riding and to significant informational challenges which he went on to explore.

This year’s special Business and Law Scholars keynote presentation was part of Western Law’s Torys LLP Corporate and Securities Law Forum and was hosted by Professor Christopher C. Nicholls, W. Geoff Beattie Chair in Corporate Law and Director of Western Law’s business law program.

Dean Erika Chamberlain, in her welcoming remarks, noted that Professor Tirole was the latest in a long series of distinguished visitors to Western Law, as part of a speakers program that is now second to none. Past Business and Law speakers at Western Law include Nobel Prize-winning economists Robert Shiller, George Akerlof, Myron Scholes, and Oliver Hart; Delaware Supreme Court Chief Justice Leo E. Strine Jr.; and Lawrence Summers, former U.S. Treasury Secretary and President Emeritus of Harvard University.

The Torys LLP Corporate and Securities Law Forum was established in 2015 together with the creation of the W. Geoff Beattie Chair in Corporate Law, thanks to generous donations from Torys LLP, Western Law alumni at the firm, and Geoff Beattie, LLB '84, CEO of Generation Capital Ltd. and Chair of Relay Ventures.

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