Comparative Business Ethics

1. Comparative Business Ethics BUS 430 Summer 2013 Dr. Rajiv Krishnan Kozhikode

2. Agenda • Critical reflection report 1 • Critical reflection report 2 • Comparative Business Ethics

3. Covariates of the Unofficial Economy (Johnson, Kaufmann & Zoido-Lobaton, 1998) • What are the characteristics of the unofficial economy • Business activities not registered • Do not to pay taxes • But cannot claim benefits from any publicly provided services (e.g., legal enforcement of contracts) • How does it affect the official economy • Lesser revenues from taxes • Lesser supply of publicly provided services • Decreased incentive for firms to operate in the official economy • Hence, a downward spiral

4. Why is there an unofficial economy? • Regulation and Bureaucracy • Taxation • Rule of Law & Corruption

5. Regulation and Bureaucracy • Unofficial economy is bigger in countries where • Regulation is not business-friendly (i.e., too much regulations) • Regulatory discretion is high (i.e., enforcement of rules is lax) • Quality of bureaucracy is poor (i.e., inefficient and unpredictable) • Economic freedom is lesser (i.e., poorly regulated) • But overall economic development limits some of these effects.

6. Taxation • Unofficial economy is bigger in countries where • Tax burden is higher • i.e., officials abuse tax payers • Unclear tax guidelines • Level of taxation is lower (tax havens) • Low tax rates is not essentially good for the official economy

7. Rule of Law & Corruption • Unofficial economy is bigger in countries where • Law and order tradition is not strong (no body respects the law) • Protection of property rights is not ensured (i.e., expropriation concerns) • Legal system is biased (i.e., discriminatory enforcement of law) • Corruption practices are rampant (i.e., it is everywhere) • Bribery is normative (i.e., it is a widely accepted practice)

8. Cultural underpinnings of corruption • Does your culture make you corrupt? • i.e., controlling for institutional and economic characteristics, can culture explain a person’s intrinsic motivation to give and take bribes? • The answer is yes, but some people may differ. • How do we know this? • Field experiments by Fisman & Miguels (2007): • Parking violations by diplomats in NYC • Home country’s corruption level predicted diplomat’s parking violation • Controlled bribing experiment in lab by Barr & Serra, 2010 • Experiment of multi cultural student sample • Bribe given by private individuals to government officials

9. The results • Home country’s corruption levels predicted an individual’s tendency to take and receive bribe • But when the individuals are in the new country out of personal choice (presumably due to their preference to its anti-corruption institutional characteristics), they tend to avoid corruption even when their home country is corrupt. • These individuals can perhaps act as agents of change

10. That’s it for today • Next session we will have our second factbook workshops • Consider this a 5 minute pitch to investors to employ you as their country analyst. • Try to come up with a framework for your factbook • Think of a good, meaningful title • Be prepared with the motivation for your choice of industry • Identify points of comparison • Use information from each session to structure your comparison • Identify the most relevant sessions for your industry • Identify how information about each topic relates to the overall report • Identify relevant sources of data • Discuss how you will use it • Tell us what the investor could expect from your factbook