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Chapter 9 Fairness in Financial Markets.docx
Chapter 9 Fairness in Financial Markets.docx

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Ryerson University
FIN 800
Lorne Zeiler

FIN800 Ethics in Finance CHAPTER 9 Fairness in Financial Markets  Fairness: a moral concept concerned with comparative treatment or assessment of individuals (or group of individuals): to be treated fairly is to be treated similarly to others with respect to a rule, agreement, or recognized expectation o Normative or moral evaluation of businesses and markets examines commercial practices in terms of their foundational principles or in terms of operational or interactions that arise once these principles are set in place  Consideration of application of fairness to foundations and operations of markets, especially financial markets, illuminates central moral and political questions and suggests that ethical evaluation of complex social and economic phenomena demands careful analysis MARKETS AND FINANCIAL MARKETS  Unintended benefits arise as individuals respond to particular circumstances, use their knowledge, and strive to better their own condition  Markets are composed of for-profit trades (even though the participants need not be profit maximizers) o Profits serve as signals of where to invest one’s time and resources, as do prices, for price of an item reflects preferences of individuals in relation to supply of the item  Activities and choices of individuals, as regulated by government or influenced by industry, constitute the operations of markets  Given human circumstances, fortune, skill, and effort, that wealth of markets will not accrue equally to all persons o Value of one person’s knowledge may be vastly greater than that of another; product of one firm may secure a wider customer base than that of competitor FAIRNESS: FORMAL AND SUBSTANTIVE  In being fair one does not fulfill all of the aims of ethical conduct, so fairness should not be identified with whole of ethics  Justice and fairness may diverge, for some demands of fairness could require violation of constraints of justice o Aristotle assets that justice involves giving to equals equally and to unequal unequally  Fairness, referred to as “procedural fairness”, takes up fairness in relation to rules, agreement, or recognized expectation to generate claims on part of those to whom rules, agreements, or expectations apply  Claim is a kind of moral reason where we are concerned with what we owe others o To treat person fairly is to ensure that the claim is satisfied in proportion to its strength: fairness requires that claims should be satisfied in proportion to their strength o If fairness is a kind of moral reason, then the idea of fairness can be applied to the very substance of rules, agreements, or expectations  Appeal to fairness does not trump all other moral considerations  Without a right (or some equivalent claim) there is no enforceability FOUNDATIONS OF MARKETS Income and Rewards  Inequalities in income and wealth result from consumer preferences and from how individuals with certain skills, traits, and luck are able to respond to these preferences in a timely fashion o Inequalities are the cumulative effect of prior distributions of natural assets – that is, natural talents and abilities – as these have been developed or left unrealized, and their use favoured or disfavoured over time by social circumstances and change contingencies  Principles of justice: undergird and inform the structure of society are precisely those principles that would be selected in a situation of choice that is itself fair o Veil of ignorance: parties do not know facts about themselves, including education, social status, intelligence, or their conception of the good  Principles that are chosen are two 1. That each person has a right to basic liberties 2. Social and economic inequalities are permissible only of these inequalities benefit the “least advantaged” and are “attracted to offices and positions open to all”  Self-sufficient association of persons: idea that we have embarked together on a venture or formed an “association” suggests that any one person’s goods, traits, or situations should not be favoured or disfavoured in comparison to those of others FIN800 Ethics in Finance Fairness and Public Finance  Institutions of government require revenue to function: laws must be enforced and justice met; the programs and services of the state must proceed  Alleged unfairness rests on two principles 1. Those who receive benefits should pay the costs 2. Those who bear the costs should have some say in whether they are imposed  Two ways to deal wi
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