The price of morality

Notwithstanding the philosophical bent of some of its founding minds, including Adam Smith, mainstream economics today does not concern itself explicitly with matters of right and wrong.

Of course, some general notion of “welfare maximization” is taken by the profession to be “right”, and by implication all alternative objectives are at least dubious if not outright wrong. But this does not get us very far. It merely gives rise to a highly simplistic and subjective handling of what Jack on the street would consider to be “moral” questions. What are an economist’s views on gay marriage, abortion, drug legalization, vegetarianism, gun control, and so on? Some economists will have more permissive attitudes on these issues, and some will have more conservative attitudes. If asked to defend a moral stance, an economist who has donned his “economist” hat will rationalize whatever position he has adopted based on some notion of welfare maximization. The end.

One could claim that this chameleon-like ability of economics to support multiple and often completely conflicting moral stances is perfectly fine, and that economics is a pragmatic science that should not be asked to generate advice on philosophical questions beyond the vague notion of welfare maximization. But the real problem is not any innate limitation of economics, but a limitation of measurement. Even if we were to accept the maximization of a particular discounted welfare function as the sole ethical criterion that should guide moral decisions, the measurement of marginal welfare obtainable from adherence to different moral codes is incredibly fraught, and this is what leads to our discipline’s routine moral ambiguity.

What makes measurement particularly difficult in cases of morality? First, a significant fraction of felt pleasure from witnessing, imagining, or performing acts that the beholder believes to be moral goes unseen by not only the economist, but by everyone except the person experiencing it, as it is generated via non-market-based and hence non-priced interactions. Second, we face the perennial problem of not observing a reasonable counterfactual. How can we measure how much joy the drug addict receives from his injection, and even if we knew that with certainty, how can we measure, for comparison, the amount of marginal pain he will cause his friends and family in future periods due to his addiction (relative to the counterfactual of his not being addicted)?

Public figures discovered to have violated a social moral code do face material consequences evident to all. The recent scandal surrounding the American general Petraeus is a case in point. Yet there is no observable price placed on his behavior – only public disapprobation and loss of status – and even thinking about how to measure the welfare of all relevant players in each of two possible states of the world (say, affair versus no affair) boggles the mind. Hence the “price of immorality” in this and similar cases is a quantity that we would struggle to measure.

Events in international trade may get us a bit closer to measuring, by contrast, the price of morality. Indonesia is now buying less live beef from Australia. This is likely (despite the denial of a causal link from some quarters) due to fear that the same type of political interference seen in the middle of last year will again unpredictably interrupt trade. Why is this casual link so likely? Because all the fundamentals point to a robust Indonesian-Australian beef trade link. Our cows are big and tasty, free of foot and mouth disease, and geographically close, and Indonesia has a strong history of importing Aussie beef cattle.

Not only was it the most likely cause of the trade decline, but our country’s political interference was purely moral in nature. Our minister for agriculture proclaimed that Australians would not countenance Australian cattle being treated in what was felt to be a cruel way, and as Indonesian abbatoirs were not up to the “killing standard”, they were barred from receiving shipments of Australian cattle, effective immediately. This was an action taken to obtain a benefit that only exists in the minds of Australians, and is hence invisible.

The rightness or wrongness of this unilateral action was evaluated in rough “welfare-maximization” terms even by non-economists. But in this case we can do more than hand-wave: as with any public policy evaluation, we can attempt to estimate the effect of the treatment. We have the value of Australian live cattle exports to Indonesia before and after the decision, and could use as a control, for example, Indonesian imports of a subset of Australian foods that do not substitute for live cattle. With a difference-in-difference estimate of the value of the export market decline, together with some understanding of the structure of the beef industry, we could generate estimates of the loss to upstream markets in Australia (cattle feed, transportation, labor, and so on). With detailed supplier cost information we could even estimate the costs and benefits of the medium-run industrial repositioning that may occur. We cannot measure the size of the invisible benefit, but economic tools might yet demonstrate that the luxury good of morality, just like lunch, is not free.

Author: GigiFoster

4 thoughts on “The price of morality”

  1. Gigi, Apart from utilitarianism and philosophical individualism economics is devoid of ethics. It is amoral. It largely takes individual values as given and then seeks to do the impossible of deriving good social decision rules. Ethical philosophy is also individualistic but questions the individual values. I think ethics should be taught with economics – and ethics that go beyond cost-benefit analysis.

    Utilitarianism is implicit in the view that there are tradeoffs involved in making social decisions about human use of nonhuman sentient beings. Yes you can prevent the torture of animals but it will cost you. Maybe that is right but it is only an ethic. The standard comparable anthropocentic counterexample is that gang rape might be justifiable if the rapists derived more pleasure than the victim experienced pain.

    Maybe morality does not always have a price or at least not a finite one.


    1. hc,
      To answer the question of whether it is “right” or “wrong” to torture animals, (economics-based) utilitarianism would advise comparing the surplus created in the world when we do, versus when we don’t, torture animals. One would then consider material aspects like violence spillovers (e.g., the person brutally killing the animal may then be more likely to beat his wife) as well as the psychic costs of knowing that, somewhere, cruelty is happening. Those latter costs themselves are zero if economic agents have not individually decided to commit to the idea that animal cruelty is wrong. Estimating these costs then must pre-suppose particular individual moral commitments, but this does not mean that economics cannot deliver an answer as to whether it is right or wrong at a societal level to engage in the cruelty, given those individual moral commitments.

      Backing up a step, asking whether it is right or wrong for a particular individual to commit to an ideal of “no animal cruelty”, or to empathize with animals or not, is just like asking whether it is right or wrong for someone to love someone else, or to be patriotic. Economics can give its clearest answers to this question when aggregate changes in individual moral codes are being considered, that then are large enough to alter the social costs and benefits in the problem sketched above. Religions may entreat people to love one another in an unconditional sense, but mainstream economics would only do so if the estimated benefits to society from loving exceeded the estimated benefits from not loving.

      The natural implications from the arguments above provide one reason why understanding the phenomenon of love would help us to be better economists. Intuitively i do expect that the “everyone loves” equilibrium, were we somehow to measure all utility associated with it, would provide higher surplus than the “no one loves” equilibrium, mainly because it implies higher effort from everyone toward utility-enhancing goals that are shared by the group. Reality of course is a grey zone: some people love, some don’t. The ones who don’t then can take advantage of those who do, meaning that the welfare implications of loving, in an individual case, are not clear-cut.


  2. Here’s a hypothesis: human societies have evolved empathy and thus morality as a partial solution to prisoner’s dilemmas. Dig into any moral dilemma you will find people paying a price for a perceived societal benefit.


    1. Ben,
      In a general sense, empathy may well be an evolutionary outgrowth of the fact that in certain situations – like when trying to survive under close to subsistence conditions, such as those faced by our hunter-gatherer forebears – we get a better result when we cooperate than when we don’t. The specific naming of the prisoner’s dilemma though implies that you have in mind specifically those situations characterized by one (giving) person potentially getting taken advantage of by another (selfish) person. How does empathy protect us from being free-ridden upon? Indeed it’s our urge to protect our own selfish interests that helps us avoid the worst in such situations.


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