The Social Contract of the Firm

Economics Ethics and Organisation / di Lorenzo Sacconi. - Berlin [etc.] : Springer ©2000. - xv 229 p. ; 24 cm. (Studies in economic ethics and philosophy)

In order to survive as a social institution a firm needs a constitutional social contract even though implicit among its stakeholders. This social contract must exist if an institution is to be justified.
The book focuses on two main issues: To find out the terms of the hypothetical agreement among the firm's stakeholders in an ex ante perspective and to understand the endogenous mechanism generating appropriate incentives that induce to comply with the social contract itself as seen in the ex post perspective.


Preface VII
Acknowledgements XI
Chapter 1 - An Overview of the Theory: Hierarchies Social Contract and Reputation 1
I. Introduction 1
II. The Firm as Hierarchy 4
III. Abuse of Authority 10
- 1. Cooperative Bargaining Games 10
- 2.Repeated Non-Cooperative Games 10
IV. Codes of Ethics 14
V. The Constitutional Contract of the Firm 18
VI. A Parameter for Reputation Effects 24
VII. Code of Ethics Rationality and 'Fuzzy Reputation 27
Chapter 2 - Economic Theory and the Social Contract of the Firm 33
I. Theory of Property Rights and Control on the Firm 33
II. Constitutional Contract of the Firm and the Theory of Justice 40
III. Economic Constitution Ownership Compensation 47
Chapter 3 - Games of Reputation and Compliance with the Social Contract 55
I. The Compliance Problem 55
II. Approaches to the Compliance Problem 59
III. Strategic Rationality and Endogenous Sanction of Contractual Commitments 64
IV. Explicitly Modelled Reputation Effects 68
V. The Repeated Game between One Long-run Player and an Infinite Series of Short-run Players 72
VI. Foundational Problems 83
Chapter 4 - How Far Does Reputation Extend? Abuse of Authority and Corporate Culture 87
I. Contexts of Transaction and the Scope of 'Reputation' 87
II. Reputation and Hierarchical Transactions 90
III. Unforeseen Contingencies 94
IV. Corporate Culture as a Basis for Reputation Effects 98
V. Corporate Culture and 'Focal Points'. A Critical Examination 102
VI. Explicit General Rules VS. Contextual Focal Points 108
VII. Moral Language 112
Chapter 5 - Information Incomplete Contracts and the Ethical Code 115
I. Default Rules and Contracts 115
II. Default Rules and Corporate Ethical Code 118
III. Complete and Incomplete Contracts and Information 120
IV. The Logic of Incomplete Knowledge and Limited Reasoning 124
V. Explicit Contracts Implicit Rules and Ethical Code 129
VI. Vagueness VS. Precision 132
Chapter 6 - Dealing with Vagueness of Norms: the Theory of Fuzzy Sets 135
I. Introduction 135
II. Definition of Elementary Fuzzy Concepts 138
III. Fuzzy Sets and Possibility 143
IV. Unforeseen Contingencies and Vagueness 146
V. Moral Code and Vagueness 151
VI. Limitations of this Way of Dealing with Vagueness 156
Chapter 7 - A Game Theoretic Model of Incomplete Contract and Ethical Code 161
I. The Hierarchical Transaction as a Game 161
- 1.1 A Hierarchical Transaction 161
- 1.2 The Game in Extended Form: the Moves of Player A 162
- 1.3 The Moves of Nature 165
- 1.4 The Moves of Player B 166
- 1.5 Payoffs in the Case of Foreseeable States 167
II. The Game in the Presence of Unforeseen Events and Vague Knowledge 170
III. Incomplete Contract and Ethical Code 173
IV. 'Mute' Contractual Rules VS. 'Vague' Moral Principles 178
Chapter 8 - Ethical Decision-making Procedure: Vagueness Default Reasoning and Reputation 185
I. Vagueness and Application of the Constitutional Principle (the First Step in the Ethical Procedure) 185
II. The Second Step in the Ethical Procedure: Fuzzy Measures of Surplus and Effort 190
III. Vagueness of Efficient/Fair Outcomes: the Third Step in the Ethical Procedure 193
IV. Default Deduction of Admissible Actions (the Fourth Step in the Ethical Procedure) 197
V. Back to Reputation Effects 202
VI. Reputation in Unforeseen States of the World 207
VII. Limitations and Final Remarks 212
References 215
Names Index 227