1.

AN INTRODUCTION TO CSR

CSR: “business doing philanthropy with other people’s money”

 A way to improve their public image
E.G.: McDonald’s is very well-known for how it gets its food (denounced by ecologists), but their
social programs mitigate the negative image on them.
 A way to avoid radical regulation changes
E.G.: To finance a green area next to a steel foundry is cheaper than facing the consequences of a big
system change (to green capitalism (change power supply, methods...) or to other alternatives to
capitalism).

Corporate Social Responsibility (CSR) refers to a business approach that involves initiatives,
policies, and practices that demonstrate a company's commitment to ethical behavior, social
causes, environmental sustainability, and the well-being of communities in which they
operate.
CSR goes beyond profit-making and emphasizes the responsibility of businesses to
contribute positively to society. It encompasses various aspects such as:
 Environmental Sustainability: Companies engage in eco-friendly practices,
reduce carbon footprints, and adopt green technologies to minimize
environmental impact.
 Social Initiatives: This involves activities aimed at improving the quality of life
for communities, including philanthropy, donations, volunteering, and supporting
education, healthcare, and poverty alleviation programs.
 Ethical Business Practices: Upholding high ethical standards in dealings with
employees, customers, suppliers, and the community at large. This includes fair
labor practices, diversity and inclusion policies, and transparency in business
operations.
 Stakeholder Engagement: Companies consider the interests and concerns of
all stakeholders, including employees, customers, shareholders, and the
community, when making business decisions.
CSR is not only about complying with regulations but also about going beyond them to
create a positive impact. It can enhance a company's reputation, attract customers and
investors who value ethical behavior, and foster long-term sustainability by building trust
with stakeholders.

 1980s-1990s: Institutionalization of CSR: CSR started to become more

institutionalized within corporations. Many companies established CSR
departments or integrated CSR into their core business strategies. Reporting
standards like the Global Reporting Initiative (GRI) emerged, encouraging
companies to disclose their social and environmental impacts.
 21st Century: Integration and Globalization: CSR became integral to many
corporate strategies, not just as a philanthropic add-on but as a means of
improving competitiveness and sustainability. Stakeholder engagement, ethical
sourcing, sustainability reporting, and responsible supply chain management
gained prominence. Additionally, globalization highlighted the need for
businesses to consider global impacts and practices.
Over time, CSR has evolved from philanthropy and charitable acts to a more comprehensive
approach that integrates social, environmental, and ethical considerations into the core
strategies and operations of businesses. Today, CSR continues to evolve, influenced by
changing societal expectations, environmental challenges, and advancements in corporate
governance practices.

CSR encompasses various tools and frameworks that help companies implement and
measure their social and environmental initiatives. Here are a few notable ones:
 SA8000: This is a certification standard developed by Social Accountability
International (SAI). It focuses on decent working conditions, including child labor,
forced labor, health and safety, freedom of association, discrimination, working
hours, and compensation.
 Global Reporting Initiative (GRI): GRI provides a comprehensive framework
for sustainability reporting. It offers guidelines and indicators that help
organizations measure and disclose their economic, environmental, and social
performance.
 ISO 26000: This international standard provides guidance on social
responsibility. It offers principles and guidelines for organizations to operate in a
socially responsible way, considering various aspects such as human rights, labor
practices, environmental responsibility, fair operating practices, consumer issues,
and community involvement.
 UN Global Compact: This initiative encourages businesses to adopt
sustainable and socially responsible policies and to align their operations and
strategies with ten universally accepted principles in the areas of human rights,
labor, environment, and anti-corruption.
 Many initiatives have been encouraged by the EU – EU Commission: Green Paper
(2001) , Communication (2002) and Communication (2006) – (2010) resolution of the
European Parliament • The deepest document : “Charter for an Europe of shared social
responsibility “, issued by the Council of Europe (2014)

UK: Accountability1000 and Sigma Project (backed by the UK government): process criteria for social
accounting
Germany: Values Management System (involving some of the most important German companies
and Konstanz University): new principle of governance and corp. culture in Germany
ISO national bodies in Spain (Aenor) and France (Afnor) have settled national CSR Standards,
anticipatory and more ambitious than ISO 26000
Italy: GBS A standard for social report including Ethical vision, a restatement of the financial
statement with the repartition of added value amongst stakeholders, and a social report describing
the impact on all stakeholders was published in 2001, and reviewed and ameliorated in 2013
Italy: Q-RES project (started in 1999) published in October 2001 the Q-RES guidelines, and then
published the Q-RES model of a certifiable norm (2005)

Some of main issues that continuously renewed the demand for CSR along the last 3 decades
1. Discontent with Globalization:
 Unfair delocalization involves companies moving operations for cost-
cutting, leading to job losses and economic disparities.
 Growing inequality highlights the need for a more equitable distribution
of wealth, both between and within countries.
 Global markets, without interventions, tend to concentrate wealth rather
than ensuring fair economic development.
2. Recurrent Corporate Scandals:
 Abusive practices, such as exploitation or unethical behavior, damage
the reputation of corporations.
 False performance reports mislead investors and the public, eroding
trust in corporate governance.
 These scandals underscore the importance of transparency, ethics, and
accountability in business operations.
3. Global Financial Crisis 2007/8:
 Opportunistic behavior by directors and managers seeking short-term
profits contributed to the financial crisis.
 Complex financial products, like derivatives, created a lack of
transparency, making it difficult to predict market behavior.
 The crisis resulted in a reduction of public welfare, an illusory reliance
on financial markets, and an increase in social inequality due to the
disproportionate impacts on different socio-economic groups.

• The COVID crisis: which obligations are undertaken by companies when the State saves them in
order to save employment?

Forces Moving in Opposite Directions in CSR Emergence (Last Century):

1. Tendency Toward Privatization:
 Neo-liberal positions prevailed in the USA and the UK in the 1980s.
 Financialization of the economy and global finance system expansion in the '90s.
 Attack on Continental Europe's compromise model (especially the German model).
 Deregulated capitalism experiments in China.
 Transnational corporations escaping national state controls.
 Privatization of various industry sectors in European countries.
 Labor law reforms for flexibility in dismissal.
2. Counter Tendency - Responsibility Attribution to Decision Makers:
 Demand for corporations to take responsibility for the consequences of economic
decisions.
 Efficiency and privatization demand accompanied by a parallel demand for fairness
and justice.
 Battleground shifting from politics to markets, emphasizing social responsibility in
decision-making.
Economic Explanation Scheme: Coase Theorem:
 Efficient outcomes in the market when transaction costs are minimal.
 Comparative consideration of costs in different institutions (market, corporations, state, self-
governance).
Corporations' Role and Influence:
 Allocating decisions to private actors redistributes power and authority.
 Corporations exert influence through market power, contractual relations, lobbying, and
internal authority relationships.
 Social costs are never zero, and opportunism exists within decision-making.
Counterforce: Corporate Social Responsibility (CSR):
 High market costs necessitate social responsibility in decision-making.
 CSR involves regulated autonomous governance, explicit self-regulation, stakeholder
dialogue, societal agreement on standards, and ethical self-enforcement.
 Public debate and authorities support CSR, leading to societal self-regulation.
Historical Dynamics:
 Shareholder value model dominance over the last four decades.
 CSR used to repair harms caused by the shareholder value model.
 Global financial and economic crises highlight the need for a shift in corporate governance
models.
 CSR viewed as a socially responsible model of corporate governance.
Conclusion:
 CSR emerges as a response to the negative consequences of privatization and the
shareholder value model.
 Transition to a socially responsible model of corporate governance is seen as essential for
societal well-being

In the late 20th century, two big things were happening:

More Power to Businesses:

Governments and economies were leaning towards letting businesses make more decisions on their
own (neoliberalism).
Big companies, including those in China, were getting more freedom to do what they wanted, and
global corporations were becoming really powerful.
Realizing Businesses Affect Everyone:

At the same time, people started realizing that what businesses do affects not just their owners but
everyone—like employees, customers, and the environment.
There was a growing sense that businesses should take responsibility for the impact they have on
society and the environment.

THE SIX STEPS IN THE MANAGEMENT PROCESS OF CSR

The six Q-RES tools for CSR
 1. Introduction to Corporate Models:
 Multiple capitalism models exist.
 The firm is an institution shaped by historical and social factors.
 The shareholder value maximization model dominated for the past 40 years.
2. Shareholder Value Model:
 Characterized by the maximization of profit.
 Managerial discretion may lead to different goals.
 Separation between ownership and control is a key problem.
 Governance involves designing incentive contracts for alignment with shareholder
interests.
 Shareholder model seen as a chain of principal-agent relationships.
3. Alternative Models:
 Various models coexisted in the past.
 US company laws reflected the idea of managerial capitalism.
 The Managerial Firm emphasizes the separation of ownership and control.
 German and Japanese models prioritize stakeholder interests over shareholder
value.
4. German Co-determination Model:
 Two levels of co-determination - work councils and supervisory councils.
 Managers in German corporations view the company as serving a larger set of goals
and interests.
5. German Performance:
 Germany's recovery attributed to co-determination rather than labor law reforms.
 Flexibility negotiated at the plant and factory level, minimizing dismissals during the
crisis.
6. Challenges: Growing Inequalities:
 Economic globalization led to a boom in inequalities.
 Governance forms and decisions affect inequality.
 Market inequality and pre-distribution strategies become crucial.
7. Global Inequality Patterns:
 Shareholder value pattern with large market income inequality.
 Central/North Europe pattern with lower market inequality.
 Asiatic capitalism with less market income inequality.
8. Role of Social Norms:
 Shareholder supremacy doctrine influenced by political actions and changes in
common sense.
 The crisis of 2007/8 destabilized the shareholder model.
 Institutional changes driven by alternative social norms, possibly sustainable and
socially responsible corporations.
9. Business Round Table Statement and EU Initiative:
 Stakeholder theory gaining prominence.
 The EU considers legal changes in corporate law with sustainability goals.
 Signals a change in social norms driving institutional changes.
10. CEO Commitments and Social Norms:
 Calls for serious commitments in CG reforms.
 CEO commitments may indicate emerging social norms.
 Social norms act as selectors of institutional equilibria.

SUSTAINABILITY & CSR

1. Global Strategies with Local Implementation:

  Sustainability and green transition are global strategies.
 Implementation involves multilevel decisions.
 Global policies against global warming require voluntary adhesion due to
limited enforcement power.
2. Corporate Responsibility for Sustainability:
 Internalizing sustainability in corporate goals accelerates SDG goals.
 Responsibility requires intentionality, causality, and the ability to affect
outcomes.
 Shared responsibility based on shared intention for joint action is crucial.
3. Interlocked Nature of Sustainability:
 Sustainability is intertwined with intra and intergenerational justice.
 Fair distribution of resources among current and future generations is a
challenge.
 Intra-generational justice involves distributing costs and sacrifices for green
transition within the current generation.
4. Governance Systems and Responsibility:
 Governance systems combine legal and self-regulation.
 Governance shapes beliefs, motivations, and incentives for effective shared
action.
 Self-governance at the community level can contribute to sustainability.
5. Elinor Ostrom's Contribution:
 Self-governance at the community level efficiently restrains overconsumption
of common pool resources.
 Self-regulation of commons may contribute bottom-up to sustainability.
6. Corporations as Key Players:
 Corporations play a vital role in sustainability.
 Internalizing sustainability and reducing social inequalities in their ordinary
functioning is crucial.
 Obstacle: Shareholder value maximization dominates corporate governance.
7. CSR as Instrumental or Constitutive:
 Many view CSR as instrumental for shareholder value maximization.
 Alternative account: CSR as a "constitutive rule" shaping the cooperative
game of the firm.
 Corporation as an artificial actor with goals beyond the interests of any
natural stakeholder class.
8. CSR as Extended Model of Corporate Governance:
 CSR involves responsibilities ranging from fiduciary duties towards owners to
analogous duties towards all stakeholders.
 Definition: Those running a firm have responsibilities towards owners and all
stakeholders.

2. transaction cost economics and the forms of economic

governance
Transaction Cost Economics:
 Definition of transaction: Exchange of a good /service through some media /interface
Definitions of Transaction Costs
Costs to be borne in order to carry out a transaction that is related to the interface/ media (their
use/regulation/governance)
 Ex-ante Costs: costs related to writing a contract /agreement
 Ex-post Costs: costs related to monitoring, verification, and enforcement of a contract

Transaction Costs determinants

Motivation Utopian (no conflict, Self-interested (seeks Opportunism (seeks self-
same goal) self-aim, respecting or aim, avoiding
Rationality not) compromise)
Perfect rat. (maximization) Theory of Team General Equilibrium Information economics
We are thinking Agency theory
Social preferences and Holmstrom, Tirole
Bounded rat. (satisfying) reciprocity Partial temporary Transaction Costs
equilibrium economics and
Psychological games incomplete contracts
=> An agent derives Williamson GHM
utility, beyond the
material payoff, from
the reciprocal
expectation that
player follow the same
rule of behavior
Behavioral (no rat.) Evolutionary games and social norms with evolutionary interpretation

Characteristics of transactions
Specific Investments: it is an investment that produces its benefit (benefit > costs) only if a given
relation continues among the parties, but entail a loss (costs, no benefit ) alternatively

“Fundamental transformation”
- “before” the investment there is indifference (as in the perfect competitive market);
- “after” the investment there is mutual (but not necessarily symmetrical) inter-dependence

What we know about the environment (information):

Unpredictability of the choice environment:
unforeseen events may happen
 Not all the possibilities are ex ante known

Information asymmetries: (not incomplete knowledge but statistical uncertainty)

 Hidden actions: Ex post asymmetric info & Ex ante asymmetric info

Frequency: frequency affects the transaction-costs level of different institutions and governance
forms.
Occasional = No governance structure (too many costs)
Arm long transaction = Single governance structure
Arm long split transaction = Informal governance

Institutions of Governance of Transactions

Classical contracts: short-term; relevant actions specified in advance; enforcement externally

provided
Neoclassical contracts: long-term; with contingent sanctions specified if certain actions are taken
- Trilateral (with an arbiter)
- Agency P-A (incentives on outcomes)
- Bilateral with endogenous sanctions (activated in further stages of the contract)
Hierarchy: physical assets under control of one of the parts
Ownership = right to exclude from access to assets (A’s decision set is put under B’s control
(B may order what action is to be executed within A’s set))
Authority = acceptance of one party to put its assets under the control of another party
(legitimate power, NOT brute power).
Property rights on assets = Authority
Residual control of right = Ownership

Low Medium High

Specificity

Frequency
One-shot or single Classical Contracts Trilateral contracting Trilateral or unified
enduring
Recurrent Bilateral New classical Bilateral or unified
contracting

Info knowledge Complete information Asymmetry Incomplete information

Specificity
Nihil Classical contingent Classical contingent Classical contingent
Medium contracts contracts contracts

Agency contracts Neo classical contracts

High (principal agent models) Unified governance (the
firm as hierarchy)

3. incomplete contracts, authority and the firm; , the GHM model

and the search of the best
Contract incompleteness depends on the lack of contingent provisions conditional on some event
(that initially we cannot foresee, or we cannot provide for).
- ex ante (before signing) writing costs of the contracts
- ex post (after signing) verifiability costs of the contract
- cognitive inability to foreseen them
Cognitive perspective: unforeseen events mean that the set of possible states an agent is aware of
isn’t completed with all existent possibilities.
►Incomplete contract: A contract is incomplete if it does not provide provisos (clauses) for some
unforeseen events.
- Lack of provisions lead to decisions D, which are conditioned to unforeseen events E. These
decisions D are UNCONTRACTIBLE because they weren’t described ex ante.
- When in an incomplete contract unforeseen events happen, decisions D are delegated to any part
of the contract. The authority in the contract can be relocated to another party of the contract and,
is it wasn’t ex ante specified, it becomes a “residual control right”.

►Ownership on production means and the power to exclude from assets

 Authority (residual control right) is assigned by means of allocation of property rights
on the physical asset of the firm.
 B accepts that will use A’s physical assets as it was stated in the contract, risking
being excluded from using them if it uses them in another way.
E.G.: A may exclude B from the physical assets (that also B needs) unless B makes the use of assets
requested by A. Then the property right supports A’ authority.
- In a context of bargaining, ownership may explain de facto authority IF AND ONLY IF: for the agent
that does not control the asset X (B, in this case), the possibility to access to X is a benefit large
enough to justify the decision of accepting authority.
►Residual control rights and efficiency: if agent A has control over decisions D that affect the value
of its investments, then she will have the incentive to invest.
►Pareto Efficiency (may be approximated but not reached): if control over decisions D is rightly
assigned, the most important investments can be incentivized, but other can be destroyed.

The Grossman-Hart-Moore theory is a model that looks at how contracts between parties
might not cover every possible scenario, especially in complex situations where unexpected
events can occur. Here's a simpler breakdown:
Imagine you and a friend make an agreement to work on a project together. At the start, you
create a basic agreement, but you can't predict every little detail that might come up while
working on the project.
 Incomplete Contract: Initially, your agreement doesn't cover every possible
situation that might arise during the project.
 Specific Investments: Both of you start investing time, money, and effort into
the project based on this incomplete agreement.
 Unexpected Events: As you work, unexpected things happen—maybe you
need more resources or face unforeseen challenges.
 Renegotiation: Since your original agreement didn't cover these unexpected
situations, you need to talk and negotiate again to decide how to handle these
new issues.
The theory also says that even though one person might have more control or ownership in
the project, that doesn't mean they have all the power. When renegotiating, both parties
have a say.
They use something called the Nash bargaining solution, which is a way to find a fair
compromise when there's a disagreement. It's like finding a middle ground that both of you
can accept after considering what each of you values.
The solution tends to be fair and equal, aiming to split any additional benefits or surplus (like
extra profits from the project) in a way that both parties feel is reasonable. In a symmetrical
situation where there's a surplus to be divided, the Nash solution suggests splitting it
equally, in half, between the parties.
So, if there's a surplus (let's say, 'v') after considering all the costs ('c'), the theory suggests
that a fair way to split that surplus is by taking half of the surplus [(v - c) / 2]. This is seen as a
fair and balanced approach according to this theory.
► inter-temporal model:
T=1: There is an incomplete contract between A and B that does not specify investments I and the
decisions D
T=2: A may undertake the specific investment I or not undertake it
T=3: The event E may happen such that some decision D becomes possible that augment the value of
services provided by B to A
T=4: - If A hasn’t undertaken I, the value of D is 0.
- if otherwise A did I, then:
- either a decision D will be feasible, having positive value (v-c) > 0
- or no decision will be feasible.
►Example
- Company A buys consultancy services by the consultant B
- An incomplete contract at time 1 commits A to acquire 100 units of services from B, and B to give
the services established in the offer and all the possible improvement
- The investment I puts A in the better position of exploiting any innovation (d) suggested by B – even
if these are not foreseeable in detail at the beginning. The feasibility of innovation however depends
on unforeseen events E
- If A does I and the innovation d is feasible, then the value of the transaction is (v - c) > 0. it is
assumed that the probability of this event is x.
- Otherwise, if the innovation is not feasible ex post, or A doesn’t do I => The transaction will have a
surplus value 0
When is it an abuse of authority? When A knows decision D isn’t feasible but makes it anyway, so B
must pay compensation.
►THE CHOICE OF THE OPTIMAL CONTROL STRUCTURE (SECOND BEST)
 Choice of Control Structure: Imagine there are different ways to run a project,
with different people having control over different aspects. The best choice of
who controls what depends on two situations: if things are worse than the best
scenario (W*) or if they're better than the second-best scenarios (W** and
W***). Both W** and W*** are worse than W*.
 Time for Decision: At a certain point in time (let's say t = 1), the contract can
be adjusted to give control to the person who can minimize the deviation from
the best scenario (W*). This deviation might happen because of how the control
is structured, which could affect how people are motivated to invest their time
and resources.
 Thinking Backwards: The analysis starts from the end (time t = 4) and looks
backward to see which path (C1, C2, C3) to choose at the beginning (t = 1). It's like
considering the consequences of each control structure from the end of the
project and going back to the starting point where the decision needs to be
made.
 Deciding in Advance: There's a decision made at t = 1 based on anticipated
outcomes at t = 4. If the situation is such that W** is better than W***, then one
person gets control. If W*** is better than W**, then the other person gets
control.
 Compensation for Control: The idea is that at t = 1, the party who agrees to
give up control might be compensated based on how much better the other
party's control is. If one person is giving up control but the other person's control
leads to a higher surplus, the first person might be compensated for the loss
incurred by giving up control.
  Efficiency and Bargaining: The solution they're proposing (P' and P'') tends to
be more efficient, meaning it's closer to achieving the best possible outcome for
everyone involved. This solution is determined by a bargaining process that aims
to maximize the overall benefits, getting as close as possible to the best scenario
(W*).
So, in simpler terms, it's about figuring out who should be in control of what in a project,
considering how their control might affect everyone's investment and the overall outcome.
The decision made early on considers future consequences and aims to balance control in a
way that benefits everyone as much as possible.

4. an Introduction to the study of ethics and business ethics

Ethics is studied in three main levels:
 Meta-ethics: It examines how ethical reasoning works and discusses the
meaning behind moral statements. This level dives into questions like what
makes our moral statements meaningful, the methodology of moral theory and
arguments, and whether moral values are objective or subjective.
 Normative Ethics: This level involves general ethical theories that guide how
we make moral judgments and shape institutions or actions. These theories, like
utilitarianism or virtue ethics, help derive moral assessments for practices and
institutions. applying general ethical theories (like utilitarianism or Kantian ethics)
to assess business practices, structures, and decision-making.
 Applied Ethics: Applied ethics uses these general theories to solve specific
problems in various fields like medicine, business, public administration, or
environmental sciences. It involves applying ethical principles to real-world
situations, often collaborating with scientific disciplines to address moral issues in
specific contexts. applies them to solve moral dilemmas or challenges within the
realm of business, considering economic practices, corporate governance,
individual managerial decisions, and ethical considerations in various business
roles.
In essence, business ethics delves into assessing economic practices, ownership structures,
governance in corporations, and individual managerial decisions through the lens of ethical
theories, aiming to make moral judgments and address moral challenges within the business
world.

Morally relevant characteristic Equal and impartial treatment Theory

Personal utility
Negative liberty
Autonomy seen as Rational
choice based on preferences
Autonomy of the will beyond
rationality
Autonomy seen as Rational
choice based on preferences
Virtues of personal characters
Desires and beliefs on useful
solution of pragmatic life
problems according to any given
culture locally and historically
situated
Well-being as based on
functionings and capability
(choice procedure)
Average personal utility Utilitarianism
Minimal state = Invisible hand Libertarianism
Bargaining agreement for mutual “Realist” contractarianism
advantage
Unanimous rational agreement Ideal contractualism
(to act in a way that should be
rational for everyone)
Coordination convention Conventionalism
Conformity to the internal model New Aristotelian communitarianism
of excellence of a social practice
Tolerance, dialog and inter- US Pragmatism
subjective agreement
To make as large as possible the Capability approach
equal amount of functionings
and capabilities provided to all
agents

Utilitarianism:
1. Morally Relevant Characteristics:
 In the context of a practice (P) and an individual (X), the morally relevant
characteristics are the utility that individual X would derive from the practice
P.
 Utility refers to the overall well-being, happiness, or pleasure experienced by
the individual.
2. Impartial Equal Treatment:
 The impartial and equal treatment of these characteristics involves
considering the utility derived by each individual from the practice.
 This impartiality implies equal consideration for all individuals, without
favoring any particular person.
3. Linear Combination of Individual Utilities:
 Utilitarianism involves creating a linear combination of all individual utilities.
 Each individual's utility is equally weighted in this combination.
4. Basis for Assessment and Choice:
 This linear combination serves as the basis for:
 Assessing the practice P in comparison to any other practice or
institution.
 Choosing the practice or institution that maximizes average utility.
5. Maximizing Average Utility:
  The goal is to maximize the overall average utility across all individuals
affected by the practice.
 The practice that leads to the greatest overall happiness or pleasure is
considered morally preferable.
6. References to Scholars:
 References to scholars like Hare (1989) and Harsanyi (1985) suggest that
these ideas are influenced or supported by their works.
Additional Points:
7. Consequentialist Ethical Theory:
 Utilitarianism is a consequentialist ethical theory, meaning it focuses on the
outcomes or consequences of actions.
8. Equal Consideration for Individuals:
 The emphasis on equal weighting of individual utilities underscores the
principle of treating each person's happiness or well-being as equally
important.
9. Maximizing Overall Happiness:
 The ultimate criterion for choosing between practices is to maximize the
overall happiness or utility in society.
In summary, this articulation aligns with utilitarian principles, emphasizing the importance of
maximizing overall happiness by impartially considering and combining the utilities of all
individuals affected by a given practice or institution.

REAL CONTRACTARIANS

The concept outlined aligns with the perspective of Real Contractarians, a moral theory that
focuses on the idea of individuals making rational choices and reaching unanimous
agreements based on their own preferences. Here's a breakdown of the key principles:
Real Contractarians:
1. Morally Relevant Characteristic:
 For Real Contractarians, the morally relevant characteristic of a practice is its
consistency with the autonomous rational choice of the individual.
 What matters is whether a rule or practice would be chosen through the free
rational decision of an individual.
2. Autonomous Rational Choice:
 The emphasis is on practices being consistent with the autonomous rational
choices made by individuals.
 Choices are made based on personal preferences and understanding, within a
context of strategic interaction with other symmetrically rational agents.
3. Strategic Interaction:
 Decision-making is viewed in the context of strategic interaction, where
individuals consider mutual advantages and engage in rational choices.
4. Equal Impartial Treatment:
 The criterion for equal impartial treatment of practices is determined by their
potential to be the basis for a unanimous agreement, seen as a bargaining
agreement.
5. Unanimous Agreement:
  If a practice can lead to a unanimous agreement, it implies that each
individual rationally accepts the practice based on their personal and mutual
advantages.
 The unanimous agreement reflects the idea that individuals, when
considering their own and others' viewpoints sequentially, would equally
accept the practice.
6. Bargaining Agreement:
 The concept of unanimous agreement is akin to a bargaining agreement
where individuals, in a rational and autonomous manner, agree to a practice
that benefits all parties involved.
7. Reference to Scholar:
 Reference to Gauthier (1986) suggests that these ideas are influenced or
supported by his work.
Additional Points:
8. Emphasis on Rational Decision-Making:
 The core emphasis is on rational decision-making, where individuals make
choices based on their understanding, preferences, and strategic interactions.
9. Mutual Advantages:
 The consideration of mutual advantages underscores the idea that individuals
weigh the benefits not only for themselves but also for others in the
interaction.
10. Sequential Viewpoints:
 The notion of considering sequentially each other's viewpoint highlights the
dynamic nature of decision-making in a social context.
In summary, Real Contractarianism places importance on practices that align with the
autonomous rational choices of individuals, with an emphasis on unanimous agreements
reached through rational and strategic interactions. This perspective aims to ensure equal
and impartial treatment based on rational considerations and mutual advantages

Kantian Contractarians:

The Kantian Contractarian perspective introduces two key variables: autonomy as

reasonableness and unanimous acceptance or consensus. It is important to note that the
interpretation of these variables differs significantly from that of Real Contractarians. Here's
an explanation of the Kantian Contractarian principles:
Kantian Contractarians:
1. Autonomy as Reasonableness:
 In Kantian Contractarianism, autonomy is considered as reasonableness.
 Autonomy, in this context, refers to the capacity for self-governance and
rational decision-making.
 Reasonableness implies a thoughtful and morally guided approach to
decision-making, grounded in rationality.
2. Unanimous Acceptance or Consensus:
 The second variable involves the requirement of unanimous acceptance or
consensus.
 For a rule or practice to be morally relevant, it must be unanimously accepted
or agreed upon by individuals.
  This consensus is impartial and respects the viewpoint of every individual
involved.
Interpretation Differences from Real Contractarians:
1. Impartial Rule of Choice in Real Contractarians:
 Real Contractarians focus on an impartial rule of choice that involves
individual rationality under a veil of ignorance.
 Rationality, in the real contractarian sense, is not necessarily tied to
consistent pursuit of personal advantage but rather follows an impersonal
criterion.
 The veil of ignorance, as proposed by Rawls (1971), means that individuals
make choices without knowing their own personal characteristics or
circumstances.
2. Interpretation of Rationality in Kantian Contractarians:
 In Kantian Contractarianism, rationality is not related to the consistent
pursuance of personal advantage.
 Instead, rationality is linked to autonomy, where the will is considered
rational if it is autonomous.
 Autonomy, in this context, means that the principle guiding one's will is based
on pure conformity to general, universal, and abstract laws of practical
reason.
 This conformity is independent of any particular end or contingency.
Additional Points:
 Veil of Ignorance in Real Contractarians:
 The concept of the veil of ignorance in real contractarians ensures that
decisions are made without knowledge of personal characteristics, fostering
fairness and impartiality.
 Autonomous Will in Kantian Contractarians:
 Kantian Contractarians emphasize the importance of an autonomous will,
guided by principles that are universally applicable and not contingent on
personal interests.
 Consensus vs. Impersonality:
 While both perspectives seek consensus, the Kantian Contractarian approach
differs by emphasizing rationality linked to autonomy rather than
impersonality.
 Categorical Imperative:
Definition:
 The categorical imperative, in Kantian philosophy, dictates that one's will should be
determined by a maxim.
 This maxim is derived from a universal moral law of reason, making it applicable to all
individuals.
Universal Acceptance:
 The maxim guiding one's will should be such that anybody, when presented with it,
can accept it.
 This implies a universality in moral principles that transcends personal or individual
perspectives.
Aim of Agreement:
  The aim of reaching an agreement is not merely for mutual advantage but aligns with
the goals of a purely autonomous agent.
 The ultimate aim is to achieve an impartial agreement with equally reasonable
individuals.
Scanlon's Contribution:
 Scanlon contributes to this perspective by emphasizing that the agreement should
not be aimed solely at mutual advantage.
 Instead, the goal is to reach an agreement that satisfies the only aim a purely
autonomous agent may have — reaching an impartial agreement with equally
reasonable individuals.
Rawls' Solution:
 Rawls provides a solution to the problem of rationality behind the veil, aligning with
Kantian principles.
 Rational decision-making behind the veil of ignorance involves more than self-
interested and instrumentally-rational choices.
 The decision-making process encompasses reasonable reasoning, reflecting the
principles of Kantian agents.
Additional Points:
 Purely Autonomous Agent:
The emphasis on a purely autonomous agent underscores the idea that decisions
should be made independent of external influences or personal interests.
 Impartial Agreement:
The overarching aim is to achieve an impartial agreement, highlighting the
commitment to fairness and universality in moral reasoning.
 Universality of Moral Law:
The concept of the categorical imperative reinforces the idea that moral principles
should have universal applicability and acceptance.

In summary, Kantian Contractarianism places importance on autonomy as reasonableness

and unanimous acceptance or consensus, with a distinct interpretation of rationality linked
to autonomous conformity to universal laws of practical reason. This interpretation diverges
from the impersonal and veil of ignorance considerations of Real Contractarians.
Hume's Conventionalism
Hume's Conventionalism in Moral Value:
In Hume's conventionalism, the moral value of a practice is determined by its rational choice
according to the preferences of any moral subject. This occurs within a context of interaction
that is potentially mutually advantageous. The key points in Hume's conventionalism are as
follows:
Characteristics of Moral Value:
1. Rational Choice:
 The moral value of a practice is derived from it being rationally chosen based
on the preferences of any moral subject.
 This emphasizes the role of individual rationality in the selection of moral
practices.
2. Mutually Advantageous Interaction:
 The context in which moral choices are made involves interactions that have
the potential for mutual advantage.
  Agents engage in practices that are expected to benefit them within a
framework of mutually advantageous interactions.
Impartial Respect and Equal Treatment:
1. Role of Convention:
 Impartial respect and equal treatment are achieved through the
establishment of a convention.
 A convention, in this context, refers to a mutually advantageous coordination
equilibrium based on the mutual expectation that others will behave in a
similar way.
2. Mutually Advantageous Coordination Equilibrium:
 In a coordination equilibrium, all agents pursue their individual rationality.
 Each agent maximizes their utility based on the prediction (CK) of other
participants' symmetrical maximizing behavior.
3. Coordinated Best Choices vs. Common Good:
 While coordinated best choices align with individual rationality and mutual
advantage, they may not necessarily coincide with a common good or
welfare.
 The focus is on practices that lead to coordination rather than practices that
universally contribute to a common welfare.
Scholars' Contributions:
1. Lewis (1969) and Sugden (1986):
 Lewis and Sugden have contributed to the understanding of conventions and
coordination equilibriums in the context of moral value. According to them
conventions are seen as frameworks that facilitate mutually advantageous
interactions and coordination among agents.

Libertarian Theory of Rights:

The libertarian theory of rights, as articulated by Robert Nozick in 1981, centers around the
morally relevant concept of respecting the sphere of negative freedom around the
individual. The key points of the libertarian theory of rights are as follows:
Morally Relevant Aspect:
1. Respect for Negative Freedom:
 The morally relevant characteristic is the respect of the sphere of negative
freedom around the individual.
 Negative freedom refers to freedom from interference or coercion by others.
Principles of Equal Respect:
1. Equal Respect for Freedom:
 A practice or institution is considered morally relevant when it equally
respects the freedom of each individual.
 This implies that the practice does not interfere, without individual consent,
with the sphere within which each individual must be free to exercise control
over their own life.
2. Violation of Negative Rights:
 Equal treatment is achieved when a practice or institution does not violate a
system of equal negative rights for all individuals.
 Negative rights are negative claims, equal for all, ensuring that the practice
does not interfere with the individual's freedom without their consent.
 3. Minimal State:
 The concept of a Minimal State is introduced as an ideal where equal negative
rights are preserved.
 A Minimal State refrains from violating the framework of rights and ensures
that individuals are free to exercise control within their spheres.
Collective Decision Process:
1. Hidden-Hand Process:
 The collective decision process in the libertarian theory is likened to a hidden-
hand process.
 This process engenders results without violating any individual rights, and it
involves voluntary acceptance of practices or institutions by individuals.
Nozick's Contribution:
1. Robert Nozick (1981):
 Nozick, a prominent figure in libertarian philosophy, emphasizes the
importance of respecting negative freedom and the idea of a Minimal State.
 His work, particularly in "Anarchy, State, and Utopia," lays out the principles
of libertarian rights and the moral relevance of non-interference.
Summary:
The libertarian theory of rights, as articulated by Robert Nozick, underscores the morally
relevant aspect of respecting negative freedom around the individual. The equal treatment
of individuals involves not violating a system of equal negative rights, and the ideal of a
Minimal State ensures the preservation of these rights. The collective decision process is
characterized as a hidden-hand process that respects individual rights through voluntary
acceptance.

New Aristotelian Communitarianism:

The new Aristotelian communitarianism, as formulated by Alasdair McIntyre in 1988,
introduces a distinctive perspective on moral quality and virtues within the context of social
practices. Here are the key aspects of this ethical framework:
Morally Relevant Aspect:
1. Promotion of Virtues:
 The moral quality of a practice is evaluated based on how much it promotes
virtues in the character of any human individual.
Principles of Equal Treatment:
1. Ethics of Human Character:
 Unlike an ethics of rules, new Aristotelian communitarianism focuses on an
ethics of human character.
 It emphasizes the development and promotion of virtues rather than
adhering to specific rules.
2. Respect for Virtues:
 The practice must respect virtues derived from inherent qualities of social
practices.
 Virtues become the moral subject, and the community, pre-existent to the
individual, defines an internal finalism for each social practice according to an
ideal of good life.
3. Community as Moral Subject:
  The moral subject, from which virtues are derived, is not the single individual
but the community itself.
 The community sets an ideal of good life and defines internal finalism for
social practices.
4. Excellence Models:
 Operationalizing the finalism involves referring to excellence models
developed within the community's tradition for each social practice.
 These models serve as a guide for organizing social practices to equally
promote the virtue of any individual.
5. Equal Treatment in Virtue Development:
 Anybody is equally treated when the social practice or the institution
regulating it is organized to equally promote the virtue of each individual.
 Equal conformity to an ideal of excellence allows individuals to develop their
character in line with the community's conception of the good life.
McIntyre's Contribution:
1. Alasdair McIntyre (1988):
 McIntyre's work, particularly in "After Virtue," introduced the new
Aristotelian communitarianism. He shifted the focus from rule-based ethics to
virtue-based ethics, emphasizing the development of virtues within the
context of social practices.

Pragmatism:
Pragmatism, as articulated by Richard Rorty in 1991, offers a distinctive communitarian
perspective that challenges the notion of universal and objective moral values. Here are the
key features of pragmatism's viewpoint:
Pragmatist Communitarianism:
1. Contingent and Culture-Relative Values:
 Pragmatism contends that moral values are not universal or necessary human
characteristics. Instead, they are contingent and culture-relative, shaped by
desires and beliefs within specific communities and cultural contexts.
2. Cultural Relativity of Desires and Beliefs:
 Individual desires and beliefs are understood within the framework of specific
communities and cultures, both geographically and historically situated.
 Pragmatism recognizes that desires and beliefs are culturally contingent, and
different cultures may have diverse understandings of what is considered
desirable and useful.
3. Ethnocentric Nature of Values:
 Pragmatism is ethnocentric in its acknowledgment that each culture defines
its values based on what it deems desirable and as a useful tool for fulfilling
desires.
4. Radical Opposition to Objective Human Nature:
 Pragmatism rejects the idea of an objective, immutable human nature. It
opposes any notion of a neutral and objective standpoint external to culture-
relative perspectives.
5. Non-Eliminable Plurality of Cultures:
 Embracing the contingent nature of values and the non-eliminable plurality of
cultures, pragmatism recognizes the diversity of cultural perspectives.
 6. Equal Treatment Principles:
 Openness and Tolerance: Pragmatism advocates for openness and tolerance
of cultural differences. Different cultures are seen as valid expressions of
diverse desires and beliefs.
 Inter-Subjective Agreement: Pragmatism proposes searching for inter-
subjective agreements as a criterion of acceptability, replacing the notion of
an objective truth about the good life.
7. Equality Among Cultures:
 Pragmatists uphold the idea that all cultures deserve equal consideration and
respect. This equality is contingent upon their willingness to engage in
dialogue and participate in inter-subjective agreements.
Rorty's Contribution:
1. Richard Rorty (1991):
 Rorty, a prominent pragmatist philosopher, contributed significantly to the
development of pragmatism as a communitarian perspective.
 His work emphasizes the importance of cultural relativity, rejects objective
human nature, and advocates for an inclusive, tolerant approach to diverse
cultural values.
Summary:
Pragmatism, as a communitarian viewpoint, challenges universal moral values, recognizing
the contingent and culture-relative nature of desires and beliefs. It promotes openness,
tolerance, and the search for inter-subjective agreements as a basis for equal treatment
among diverse cultures.

CAPABILITY APPROACH
The Capability Approach offers a fresh perspective for analyzing private law, property rights,
and corporate governance. Here's a brief explanation:
 Functionings and Capabilities: Functionings refer to different aspects of
human flourishing (what people 'do' and 'are'). Capabilities, on the other hand,
are the opportunities people have to achieve these functionings. They involve
both the ability to achieve a functioning and the right or entitlement to choose
and pursue that functioning.
 Capabilities in the Workplace: In a work environment, capabilities involve the
ability to invest in skills (like education), not being subject to authority abuse,
having access to necessary resources, and having control over decisions that
affect one's functioning in the workplace.
 Skills and Entitlements: Capabilities include not just the skills needed to
function but also the legal entitlement or right to exercise those skills. It's the
combination of the ability to do something and having the right to do so.
 Legal Notions Applied: This analysis applies legal concepts like privileges
(freedoms) and claim-rights (valid claims for actions toward someone). In the
context of capabilities, it means having the freedom to access necessary goods
for functioning and claim-rights for education, non-exclusion, and information in
decision-making.
 Workers' Entitlements in Corporate Governance: Employees should have
freedoms like access to corporate assets and decision-making processes, positive
 rights to receive information and education, and negative rights not to be
arbitrarily excluded from the firm.
 Property Rights and Limitations: The Capability Approach doesn't change
ownership but limits the scope of ownership rights in a firm. Owners can't
exclude workers from accessing necessary assets for their functioning, altering
the traditional idea of property rights.
 Democratic Equality: The focus isn't on entirely equalizing capabilities but on
ensuring a sufficient level of capabilities to guarantee democratic equality in the
workplace, avoiding abuse of power and domination.
In summary, the Capability Approach suggests that people in the workplace should have the
necessary abilities and entitlements to pursue their functionings freely, ensuring a fair and
democratic environment that prevents domination and guarantees essential rights for all
involved.

5. META ETHICS
Meta-ethics in business ethics tackles the fundamental nature of moral language and the
concepts it embodies rather than focusing on specific moral dilemmas or decisions within
the business context. Let's break it down:
1. Non-Cognitivism
 Claim: Moral statements are mainly non-cognitive, meaning they don't
express propositions with truth value like factual statements (e.g., "Mr. Smith is
Briton").
 Origin: Stemming from the naturalistic fallacy, which argues that you can't
derive moral commands from natural facts (e.g., "is" does not imply "ought").
 Divide: Fact values describe states of the world; they don't prescribe actions
on how things should be.
2. Partially Cognitive Position
 Idea: While moral statements don't directly correspond to natural facts, they
might correspond to moral facts based on moral intuitions or empirical basic
statements about how people commonly judge in everyday cases.
3. Meta-Ethics as Language Analysis
 Focus: Examining how we use moral language by attaching common meanings
to moral terms (e.g., "unjust," "good," "rightful").
 Intuitions: We have shared intuitions about the proper use of moral terms,
describing how we commonly use these expressions. This helps ensure that moral
statements align with shared linguistic meanings.
4. Description of Moral Utterances
 Purpose: Meta-ethics describes moral utterances rather than focusing on
their descriptive content.
 Example: It doesn't evaluate whether an action is truly moral or not; instead,
it examines whether the language used to describe it aligns with shared moral
intuitions.
5. Meaning Requirements
 Requisites: These are formal conditions or semantic rules that moral
judgments must satisfy to have moral meaning.
  Universal Prescriptivism (Richard Hare): Moral judgments expressed in
language must be prescriptive, universalizable, and overriding.

Characteristics of moral statements:

1. Prescriptivity of Moral Statements
 Prescriptive Meaning: Moral statements primarily give guidance for action
rather than referring to specific states of affairs.
 Example: Saying "firing Mr. Smith is unjust" implies an imperative for action -
"you shall not fire Smith."
2. Ought Entails Can
 Practical Possibility: Moral imperatives require that the actions they prescribe
are practically possible.
 Limitation: If someone couldn't have acted differently due to physical or
psychological constraints, moral judgments might not apply (e.g., a rock falling
from a window being labeled as "unjust").
3. Moral Psychology
 Motivational Obstacles: Moral duties lose their meaning if compliance faces
insurmountable motivational barriers.
 Discussion Point: Does a command lack moral meaning if a person is
psychologically incapable of carrying out the action? How does this relate to the
concept of overridingness?
4. Conflicts Between Prudence and Morality
 Classic Problem: Addressing conflicts between motivations derived from
prudence (self-interest) and those derived from morality.
 Example: Plato's story of the ring of Gyges or Hobbes discussing conflicts
between self-interest and moral obligations.
5. Prisoners' Dilemma
 Moral Systems vs. Rational Choices: Moral systems might prescribe
cooperation for the common good, but rational choices in certain situations (like
the Prisoners' Dilemma) might lean toward defection.
 Challenge: Moral commands may lack motivational strength when individuals
act rationally, prudently, and with well-informed decisions.

Concept of universalizability within moral statements and its significance (need for
consistency and impartiality, ensuring that moral statements remain valid):
1. Universalizability of Moral Statements
 Requirement: Moral judgments must be universalizable, extending to all
similar cases where relevant aspects are the same, except for specific individual
names or nouns.
 Example: If a moral judgment about "firing Mr. Smith is unjust" is truly moral,
it should hold true even when replacing "Smith" with any other name while
keeping other relevant aspects unchanged.
2. Anonymity and Universality
 Anonymity Requirement: Moral judgments shouldn’t depend on individual
names or nouns; they should remain consistent when these nouns are
interchanged in situations irrelevant to the moral judgment.
  Implication: Moral judgments need to maintain consistency in their
prescriptive meaning irrespective of the specific individuals involved.
3. Universalizability in Moral and Descriptive Sentences
 Descriptive Meaning: Descriptive sentences are true or false based on the
properties of the object referred to.
 Universalizability in Descriptions: Descriptive sentences must hold true across
possible worlds that share relevant characteristics, irrespective of specific
instances.
4. Truth in Moral Statements
 Moral Truth: Universalizability in moral judgments ensures a consistency
condition akin to empirical truth. It doesn’t confirm the truth of the moral
judgment but confirms that the judgment holds moral meaning for us.
5. Impartiality and Universalizability
 Impartiality Requirement: Universalizability imposes an impartial stance,
requiring moral judgments to be independent of irrelevant particular aspects or
individual names.
 Invariance: Moral judgments should remain unchanged when personal nouns
or irrelevant aspects are interchanged.
6. Summary
 Abstract and General Properties: Universalizability demands abstract and
general properties in moral judgments, ensuring consistency across cases with
similar relevant characteristics.
 Consistency Requirement: It insists that if a moral judgment applies to one
situation, it should apply consistently to similar situations with the same relevant
properties, irrespective of individual names or irrelevant specifics.

Concept of overridingness (true moral judgments prevail over alternative considerations):

1. Overridingness of Moral Judgments
 Definition: The truly moral judgment is the one that overrides alternative
judgments when different arguments seem equally convincing.
 Reflection of Beliefs: Our actual choices reveal our deepest moral beliefs, and
the judgment acted upon is often considered to have overall prescriptive
meaning.
2. Weakness of the Will
 Challenge: Weakness of the will occurs when individuals don't act in
accordance with their highest moral principles despite recognizing their
importance.
 Implication: This raises questions about whether the phenomenon of
weakness of the will truly exists or if moral value should be conditioned on actual
behavior.
3. Revealed Behavior and Moral Value
 Paradox: If actual behavior becomes the basis for moral value, in certain
scenarios like the Prisoner's Dilemma (PD), defecting (D,D) could paradoxically be
considered "moral" if it reflects actual behavior.
4. Experimental Ethics
  Findings: Experiments show that many individuals don't defect in the
Prisoner's Dilemma, indicating that true moral values tend to override
preferences in their decision-making.
 Limits of Moral Preference: However, moral preference might not entirely
override other considerations, as some individuals still defect, suggesting that
moral preferences are contingent on certain choice problem characteristics.
 Relevance of Communication: Factors like ex ante communication under
anonymity regarding choice criteria may impact moral preferences in decision-
making.
Methodology of moral theories:

Methodology of Moral Theories

 Shift from the descriptive analysis of moral language to a more direct
engagement with constructing comprehensive ethical theories, particularly from
the 1970s onwards, notably exemplified by Rawls's theory of justice and
Harsanyi's preference utilitarianism.
The focus of this shift in methodology involves analyzing how different ethical arguments
and theories address specific methodological questions. Here are some key categories used
to classify these theories:
1. Locus of Moral Value
 Question: Where does the moral value reside within a particular practice or
institution?
2. Perspective for Assessing Moral Value
 Question: From which viewpoint or perspective can we best evaluate the
moral worth of a practice or institution?
3. Nature of Moral Value
 Question: Is moral value subjective or objective, and how can we measure it?
4. Realism in Moral Theories
 Question: How realistic is a moral theory? How feasible is it to implement or
actualize a justified practice or institution in the real world?

Teleology vs Deontology (debate concerning the locus of moral value in practices or

institutions):

1. Teleology vs. Deontology

 Question: Where does the moral value of a practice reside?
2. Deontological Theories
 Idea: The moral value of a practice lies within the practice itself as an intrinsic
characteristic.
 Examples: Rightness or duty inherent in the action, fairness, universal
acceptance by informed agreement, or the correctness of intention.
 Priority: Emphasizes the concept of "just" over "good" consequences; "good"
outcomes follow from "just" practices based on principles.
3. Teleological Theories
 Idea: The moral value of a practice lies in its consequences or its goal, external
to the action itself.
 Justification: Practices or institutions are justified if they effectively lead to
achieving the moral "good."
  Instrumental Rationality: Means derive their value from the goodness of the
end; happiness or utility resides in the consequences (utilitarianism).
4. Teleology in Aristotelian Ethics
 Eudemonia: Happiness or eudemonia in Aristotelian ethics is also teleological,
depending on virtue.
 Virtue and Good: Virtue aligns with the ideal of a practice aiming toward an
"end," defining the right action that produces the intrinsic good.
 Example: The happiness of a lute-maker lies in creating the perfect lute,
aligning with the ideal end of their practice.
Summary:
 Deontology: Values lie within the actions themselves or intrinsic
characteristics, prioritizing the concept of "just" actions over "good"
consequences.
 Teleology: Values are located in the consequences or goal, where the
effectiveness of means in achieving the moral "good" justifies practices or
institutions.

Neutral reasons vs Agent related reason to act:

1. Moral Assessment Viewpoints

 Traditional View: Moral assessments often emphasize impartiality and
impersonality, often termed as neutrality in assessing moral actions.
 Tom Nagel's Perspective: Suggests that moral experience involves an
essential tension between neutrality and the personal viewpoint.
2. Neutral Reasons to Act
 Definition: These are reasons independent of an individual's personal
experiences or perspective.
 Impersonal Reasons: Valid and applicable universally, irrespective of personal
positions in a decision-making scenario (as an agent, receiver, or observer).
 Examples: Kantianism focuses on autonomy by relinquishing personal
interests and conforming to universal laws of reason. Consequentialism and
Hedonist Utilitarianism prioritize actions based on impartial assessment of
consequences or experiences, regardless of who is affected.
3. Agent-Relative Reasons to Act
 Definition: These reasons stem from an individual's personal perspective or
specific roles within relationships or positions.
 Internal Perspective: Grounded in an individual's life experiences or specific
roles (e.g., professional-client relationship, father-son relationship, community
member).
 Deontological Reasons: Stem from particular positions concerning specific
persons; appreciated only when considering oneself in the role needing to act
(neither the receiver nor the observer).
Summary:
 Neutral Reasons: Independent of personal experiences or positions,
emphasizing impartiality and universality in moral assessments. Examples include
Kantianism, Consequentialism, and Hedonist Utilitarianism.
  Agent-Relative Reasons: Stem from personal experiences or specific roles,
leading to reasons grounded in relationships or particular positions within
interactions.

Objectivity vs Subjectivity of moral value (values are subjective constructs formed from personal
preferences or exist objectively, preceding individual preferences?):

Subjectivists' View:
 Nature of Value: Subjectivists assert that value is ascribed to objects or states
of the world solely based on their relationship to individual preferences.
 Value Creation: Values are created or determined through preferences,
stemming from affections and personal experiences.
 Subjective Nature: Values are events residing in our minds, originating from
our capability to feel and form preferences based on interactions with the world.
 Preference Rationality: Despite being subjective, subjectivists argue that
preferences aren't necessarily arbitrary and can be rationalized and made
consistent through reflection and mutual adjustment.
Objectivists' Perspective:
 Value Precedes Preference: Objectivists argue that values exist independently
of personal preferences. Preferences are formed after understanding what holds
value.
 Deriving Objective Value: Attempts to derive objective value often rely on
sources such as human biological needs or universally assessed consequences in
teleological approaches.
 Universality in Subjective Judgments: Objectivists consider whether
subjective judgments can be universalizable, where utilitarians aim for an
impartial assessment of individual utilities, and deontologists seek fairness
through unanimous rational voluntary consent.
Summary:
 Subjectivism: Values are created through preferences based on personal
experiences and affections. Preferences can be rationalized and adjusted but are
rooted in subjective experiences.
 Objectivism: Values exist independently of preferences, and preferences are
formed after recognizing the inherent value. Attempts to derive objective value
often stem from sources like universal consequences or unanimous rational
voluntary consent in decision-making processes.

Realism (moral commands can generate enough motivational support to be implemented

practically?):

Motivational Support:
 Implementation of Moral Commands: A central concern is whether moral
prescriptions can garner enough motivational support to be translated into
practical behavior.
 Agent-Relative vs. Impersonal Reasons: While decisions are often taken from
an agent-relative perspective, moral reasoning emphasizes impartial and
impersonal reasons.
Ex Ante vs. Ex Post Reasoning:
  Ex Ante Reasoning: Assessment of decisions without personal identity or
preferences.
 Ex Post Reasoning: Assessment of the same decision after being informed
about one's identity and preferences.
Consistency and Impartial Reasons:
 Consistency Requirement: Motivational support is achieved when the
decision reached by ex post reasoning aligns with the one supported by ex ante
reasoning.
 Impartiality and Shared Reasons: Impartial reasons, valid for everyone, are
those that each individual would recognize as valid and are shared universally.
Challenges and Solutions:
 Bargaining Problem Analogy: Some scenarios mirror both impartial arbiter
selection and individual perspectives, ensuring consistency.
 Context of Justification vs. Implementation: In contexts of justification, only
neutral reasons matter, while in implementation, all reasons, including agent-
relative reasons, hold weight.
 Diverse Agent-Relative Reasons: Agent-relative reasons span from self-
interested and altruistic motives to conformity due to group imitation or
adherence to moral principles reciprocally followed.

6. The capability approach and its application of corporate

governance and the employees participation rights

Corporate Governance and Stakeholders:

 Definition: CG refers to the structure of rights and responsibilities among
parties involved in a firm, often boiled down in neo-institutional economics to
allocating control rights to shareholders, creating a hierarchical authority model.
 Research Questions: Focus on whether CG affects stakeholders' well-being,
mainly workers, and how to allocate entitlements to prevent unfair well-being
distribution.
Capability Approach (CA) Application:
 Utilizing CA: The Capability Approach (CA), pioneered by Amartya Sen and
Martha Nussbaum, is employed here for its normative criterion in allocating
entitlements to stakeholders.
 Capability as Entitlement: Drawing a strict link between capabilities and
entitlements, the example of the Bengal famine highlights the critical role of legal
entitlements in accessing capabilities (like access to food).
Application of Capabilities to Corporate Domain:
 Extension to CG: The concept of capability-as-entitlement is extended to CG in
the corporate domain, framing capability as a legal liberty that curbs claims from
property rights owners, such as the claim to exclude someone from the firm.
Key Points:
 These notes emphasize the relationship between CG and stakeholders,
particularly workers' well-being and fairness in distribution.
  The Capability Approach is used as a lens to understand and allocate
entitlements in the corporate domain, considering legal liberties and curbing
property rights claims for a fairer distribution of well-being among stakeholders.

Amartya Sen’s Capability Approach & Wesley Hohfeld Jural Relations Taxonomy:

Linking Capability to Entitlement:

 Steps in Recognizing Capability as Entitlement: These notes emphasize the
need to recognize capabilities as foundational for agency, particularly in a legal
context, focusing on the notion of liberty and its role in transforming goods into
functionings.
Sen and Hohfeld's Taxonomy:
 Utilizing Hohfeld's Taxonomy: They explore a connection between Amartya
Sen's Capability Approach and Wesley Hohfeld's jural relations taxonomy, likely
to establish a framework for understanding entitlements within legal
perspectives.
Extending Justice to Corporate Governance:
 Normative Reasons: The notes point out why justice based on the Capability
Approach should extend to the realm of corporate governance, citing reasons like
the abuse of authority (1), concerns regarding unaccountable private governance
(2), the intrinsic value of work (3), and referencing the Penelope canvas paradox
concerning welfare impossibility (4).
Key Points:
 These notes seem to focus on aligning Sen's Capability Approach with legal
notions of entitlement, possibly using Hohfeld's framework, to establish the
concept of capability-as-entitlement within a legal context.
 Additionally, they argue for the extension of justice based on the Capability
Approach to address issues within corporate governance, stressing the
importance of considering workers' welfare, abuse of authority, and the intrinsic
value of work.

Numbers mentioned before:

1. Abuse of Authority:
 Risk of Overreaching Control: There's a concern about bosses utilizing their
residual control rights to extract value beyond protecting their investments. This
exceeds the legitimate scope and becomes an "abuse of authority."
2. Unaccountable Hierarchy:
 Private Government Analogy: Describes corporate hierarchy as a private
government without accountability.
  Absence of Republican Freedoms: Stakeholders are subject to arbitrary
decisions without mechanisms for accountability. This stands in contrast to Sen's
capability approach, which advocates for capabilities that align with republican
freedoms.
3. Significance of Work:
 Kantian Perspective: Views labor not just as a means but an end in itself for
workers, highlighting their preferences and autonomy.
 Boss's Authority and Workers' Goals: Proposes that the boss's authority
should align with workers' goals, seeking moral legitimacy from the workers
themselves.
4. The Penelope Canvas Paradox:
 Public Welfare vs. Private Institutions: Raises concerns about the disparity
between the capabilities fostered by public welfare institutions and their
potential unraveling within private institutions like firms.
 Example: Discusses how capabilities nurtured by public education might be
negated or restricted within the corporate setting, affecting employee well-
being.

SO, TO UNDERSTAND WHAT ARE CAPABILITIES (SEN) AND FUNCTIONINGS (HOHFELD)

Functionings:
 Eudemonic Well-being: Functionings refer to various aspects of human
"being" and "doing," contributing to a person's flourishing or well-being in diverse
areas valued by that individual.
 Examples: It encompasses not only material well-being but also elements like
health, education, social interactions, activities, and achievements that contribute
to a person's fulfillment.
Capabilities:
 Support of Agency: Capabilities enable individuals to exercise agency or the
ability to act.
 Transformation Functions: They facilitate the conversion of goods into
functionings, allowing individuals to actively achieve certain states of being or
doing.
 Choice Set and Freedom: Capabilities also encompass the array of choices
available to individuals, allowing them the freedom to select the functionings
they aim to achieve.
 Effective Liberties and Opportunities: Capabilities represent not just
theoretical freedoms but practical opportunities and effective liberties that
empower individuals to lead lives they value.

Not solely about possessing goods but also having the effective freedom and opportunities to
achieve various valued states of being and doing.

Skills and entitlements as components/preconditions of capabilities

Components of capabilities within the Capability Approach, highlighting the significance of

skills and entitlements as preconditions for the realization of capabilities.
Skills and Entitlements as Components of Capabilities:
  Skills for Functioning: Capabilities involve possessing the necessary skills to
effectively engage in various functionings or activities. These skills are crucial for
transforming inherent characteristics into chosen functionings.
 Example: Having the ability or skill to perform a task or engage in an activity,
such as the skill of using certain technologies for work.
 Legal Entitlements: Capabilities also include legal entitlements or rights.
These entitlements are essential as they provide the freedom and access
necessary to exercise one's capabilities.
 Freedom to Access Resources: An entitlement could mean the freedom to
access resources needed for functioning. This might involve access to education,
healthcare, economic resources, or any other essential aspect required for a
particular functioning.
 Freedom from Exclusion: It also includes the entitlement not to be excluded
or denied access to resources needed to exercise chosen functionings.
Significance in Capability Approach:
 Dual Preconditions: Within the Capability Approach, capabilities are viewed
as comprising both the skills or abilities to engage in functionings and the legal
entitlements or freedoms necessary to access resources or avoid exclusion.
 Completeness of Liberties: Capabilities are only truly realized when
individuals possess both the skills to function and the entitlements or freedoms
enabling them to exercise those functions effectively without hindrance or
exclusion.

Interdependence of skills and entitlements within capabilities. Having the ability alone is
insufficient if one lacks the necessary entitlements or access to resources to exercise those
abilities effectively.
Wesley Hohfeld's fundamental legal conceptions (1917) analyze legal notions based on
trilateral relations involving two parties (X and Y) concerning an action (A) on a good.
Rights vs. Liberties - Correlatives and Opposites:
 Rights and Liberties Defined:
 A right of X is a claim that X has against Y, demanding that Y performs or
refrains from an action A on a good. This right is correlated to a duty imposed on
Y to fulfill X's claim. It's opposite to Y's liberty.
 A liberty of Y is the freedom Y has to do action A on a good. This liberty is
correlated to a no-claim from X against Y, indicating the absence of X's demand.
It's opposite to X's duty.
Deontic Logic Notions:
 Rights Explained: A right signifies X's claim for Y to perform or refrain from an
action A. This is correlated to Y's obligation towards X, either to act or abstain
from acting.
 Liberties Defined: Y's liberty to perform action A means Y has no obligation
towards X to refrain from doing A. It indicates the absence of Y's obligation
related to X's claim, thereby limiting X's rights.

Hohfeldian Property Rights:

  Property Rights Defined: A property right implies a claim against anyone
regarding access to a property. For instance, if X has property rights over a shop
(B), it means X has a claim that anyone (Y) refrains from accessing or is excluded
from the shop if not admitted.
 Relation to Liberties: The negation of Y's duty becomes a liberty for Y,
allowing the freedom to enter the shop, even if not explicitly admitted. This
liberty, within Hohfeldian analysis, limits property rights.
Residual Control Rights in Corporate Settings:
 Hart's Concept of Residual Control: In the context of a boss (X) having
residual control rights over a firm, it means X can claim exclusion of subordinate
(Y) from accessing physical assets if Y doesn't comply.
 Employee Liberties: Y's liberty is the negation of the boss's claim, allowing
access to the firm's assets even if Y doesn't comply with orders.
Half Liberties and Full Liberties:
 Understanding Liberties: Hohfeldian liberties are identified as half-liberties,
offering permissions but not necessarily encompassing full freedom of choice
between doing and not doing an action.
 Sen's Capability Approach: Sen views capabilities as full freedoms, enabling
individuals to make choices about how to function. This involves not just
permissions but also the freedom to choose between alternative actions.
Relation Between Hohfeldian Liberties and Capabilities:
 Differences in Liberties: While Hohfeldian liberties are permissions (half-
liberties), Sen's capabilities emphasize actual freedom of choice (full liberty) to
function and make decisions.
 Addressing the Gap: The notes question how capabilities, focused on agency
and freedom of choice, can be based on Hohfeldian liberties that, in their
analysis, offer only permissions and not a complete freedom of choice.

Amartya Sen's Capability Approach:

Instrumental Value:
 Functionings and Capabilities: Capabilities, in Sen's framework, are
transformation functions that convert characteristics of goods into actual
functionings, thereby influencing an individual's well-being.
 Value of Functioning: The value of a capability is determined by the well-
being value of the functioning it facilitates. However, solely deriving value from
functionings lacks the element of choice among alternatives.
Agency Value:
 Value of Choice: Sen's approach extends beyond the instrumental value by
focusing on agency. The value lies in the ability to choose from a set of
alternatives when selecting a specific transformation function.
 Expanding Choices: A larger set of alternatives enhances the value of
capabilities, as it amplifies the freedom of choice.
Conditions for Full Capabilities:
 Necessary Condition: At a minimum, to possess a capability, one must have
the corresponding Hohfeldian half-liberty, granting permission to access certain
characteristics that enable the achievement of a functioning.
  Sufficient Condition: Achieving full capabilities necessitates at least two
Hohfeldian half-liberties, providing both the instrumental value (enabling
functioning) and intrinsic value (offering a choice among alternatives).
Relationship Between Capabilities and Legal Liberty:
 Necessary Condition Clarified: Having a capability involves possessing a
partial liberty—a permission allowing access to certain characteristics essential
for transforming them into functionings.
 Volitional Activation: A capability must be actionable willingly, emphasizing
that it should not arise solely due to external necessity. Even if there's an
obligation, agency remains intact as the agent can choose to comply or defect
willingly.

The sufficiency condition for achieving the complete value of a capability involves having at
least two Hohfeldian half-liberties, granting a full choice between engaging in an action (A)
and not engaging in that action (not A). This condition encompasses both instrumental and
agency values of liberty, extending beyond the necessary condition.
Sufficiency Condition:
 Full Choice: To attain the full value of a capability, it's necessary to possess
both Hohfeldian half-liberties, allowing for a complete freedom of choice
between doing A and refraining from doing A.
 Instrumental and Agency Values: This condition encapsulates both aspects of
liberty—the instrumental value facilitating functionings and the agency value
providing the freedom to choose among alternatives.
Bilateral Liberty:
 Completeness of Choice: The sufficiency condition introduces a bilateral
liberty that includes:
 The negation of the duty to engage in action A.
 The negation of the duty to refrain from action A (not A).
Overall, these notes emphasize that while a single Hohfeldian half-liberty, or a partial liberty,
is the necessary condition for a capability, achieving the full value of capabilities demands
the presence of both half-liberties, granting a complete freedom of choice between actions
and non-actions. This understanding is crucial when exploring the Capability Approach in the
context of corporate governance and employee participation rights within business ethics.

Fundamental relationship between capabilities and jural relations, pointing out a thought-provoking
theorem:
Theorem:
 Abundance of Capabilities: In a world characterized by numerous capabilities, there
would be a profusion of jural liberties—both unilateral and bilateral liberties as
entitlements.
 Liberties and Functionings: These jural liberties facilitate liberties of functioning,
essentially based on the prevention of inaccessibility claims and exclusion duties.
 Impact of Property Rights: Conversely, in a scenario where everything is privately
owned (especially when certain crucial goods cannot be infinitely and equally divided),
there would be a scarcity of capabilities.
 Property Rights vs. Capabilities: The theorem implies an inverse relationship—more
property rights correspond to fewer capabilities and functionings in a society.
Implication:
This theorem suggests an intriguing relationship between the distribution of property rights and the
availability of capabilities. It proposes that an excess of property rights might potentially limit the
proliferation of capabilities and functioning opportunities within a society.

Necessity of governance structures:

Importance of Governance:
 Managing Stakeholder Conflicts: With various stakeholders possessing
different entitlements, conflicts can arise. A governance framework becomes
crucial in maintaining a fair balance between these conflicting liberties, especially
the freedom to access company assets and resources.
 Capabilities as Legal Entitlements: Initially, capabilities are considered legal
liberties—a privilege allowing access to goods, assets, information, knowledge, or
decision-making processes required to achieve a particular functioning.
 Protection through Claim Rights: Capabilities can also be protected through
claim rights, which can be positive or negative:
 Positive Claim Rights: Entail the right to receive education or resources
necessary for the development of a skill or capability (e.g., acquiring specific
knowledge or training).
 Negative Claim Rights: Involve protection against exclusion from essential
assets or resources necessary for functioning (e.g., access to tools, facilities, or
information vital for one's work).
Role in Corporate Governance and Business Ethics:
They're essential for ensuring equitable access, protecting entitlements, and managing
conflicting claims among stakeholders.

The Capability Approach (CA) doesn't advocate for the redistribution of ownership of firms
to employees or other stakeholders. However, it does imply limitations on the traditional
concept of "ownership of the firm."
Altered Notion of Ownership:
 Restrictions on Full Property Rights: Under the Capability Approach,
ownership of the firm doesn't solely equate to the traditional concept of full
property rights. It's no longer just about the right to use and dispose of the
property exclusively.
 Not Absolute Exclusion: Unlike the standard idea of ownership ("utendi et
abutendi"), where the owner has the right to exclude anyone from the property,
ownership within the CA framework doesn't grant absolute exclusionary rights.
 Limitation on Exclusion: The owner can't completely exclude workers or
stakeholders from accessing company assets essential for their functionings. This
means that the scope of ownership is limited in a way that doesn't allow
complete exclusion of others from necessary resources within the firm.
Implications for Corporate Governance:
Instead of absolute control and exclusion, the owner's rights are limited, ensuring access to
resources essential for the functionings of employees and other stakeholders.

Corporate Governance (CG) and the Capability Approach:

Worker Entitlements within Corporate Governance:
  Access to Corporate Assets: Workers are entitled to access corporate assets
necessary for their roles as professionals. This access is crucial for them to
effectively carry out their job functions.

 Access to Decision-Making Processes: Workers have the entitlement to

participate in the decision-making processes within the company. This right
ensures that they have a real choice and influence in the functioning of the
organization.
 Claim Rights for Information: Workers hold positive claim rights to receive all
relevant information necessary for effective participation in decision-making. This
access to information forms the basis of developing their capabilities and skills.
 Protection from Exclusion: Workers possess negative claim rights, protecting
them from being arbitrarily excluded from the firm. This ensures that they aren't
unfairly dismissed or obstructed from accessing resources essential for their
functions.

Democratic equality in the workplace doesn't necessarily mean absolute equalization of all
capabilities among workers. Instead, the focus is on ensuring a threshold level of capabilities
that guarantee democratic equality and prevent domination or abuse of authority within the
corporate domain.
Elizabeth Anderson proposes a sufficiency criterion for "fair capabilities." This criterion aims
to establish a threshold of capabilities that, once met, ensures democratic equality for
individuals in the workplace. It's not about absolute equality but rather about ensuring that
essential entitlements are provided to prevent unfair domination and abuse of power within
the corporate structure.
The list of entitlements provided earlier could serve as a provisional identification of
sufficient capabilities necessary for achieving democratic equality in the corporate domain.
These entitlements, including access to assets, participation in decision-making, information
access, and protection from exclusion, contribute to establishing a fair and equitable
workplace environment, aligning with the goal of democratic equality.

7. reckoning moral theories in a managerial dialog

The process of normative theory evolution often involves a method called reflective
equilibrium. Here's how it typically works:
 Moral Theory Adaptation: A moral theory aims to reconcile conflicting
intuitions until it reaches a point where certain intuitive judgments are strongly
resistant to change. This resistance occurs when expert decision-makers
consistently dissent from the theory's prescriptions in real-world decision cases.
 Theory-Intuition Interaction: At this juncture, the theory itself must adapt to
align with these considered intuitive judgments. It's a continuous process of
theory revising to accommodate the weight of these intuitive judgments.
 Reflective Equilibrium: The adaptation process continues until the theory
achieves reflective equilibrium—a state where it coheres with all relevant
 considered intuitions. In this state, the theory and intuitions support each other,
creating a stable balance.
 Interpreting Moral Judgments: To trace this equilibrium, it's crucial to
understand how moral judgments, initially based on intuition, are consistently
justified by a moral theory after it's adapted to accommodate dissenting
intuitions. This involves reframing intuitions in terms of the evolved moral theory
that now aligns with these intuitions.
In a managerial context in business ethics, this method allows for the evolution and
refinement of ethical frameworks. It involves a continuous dialogue between moral theories
and real-world intuitive judgments made by experts. The goal is to reach a state where these
theories coherently explain and align with the considered intuitions in decision-making,
leading to a more robust ethical framework for managerial decision-making.

E.G.: Multinational company X (with a subsidiary in Italy) introduces an information technology

system for managing online the purchase of certain services and components (this entail that some
production will be externalized and the supply chain for them will be centrally managed).
• Consequently, the Italian Subsidiary Y of X is asked to reduce its productive plants and to re-
organize all the production within a single plant adopting the new technology for centralizing the
supply chain management (what was done internally in Italy will be done by external supplier
managed centrally).
• There are two alternatives open to the board choice: to shut down plant A or plant B
- Plant A: is placed in a depressed area (viz, the South of Italy), where there aren’t alternative
job opportunities for workers and suppliers haven’t any alternative but to offer their services to
A, they are locked into the relation with A, many activities are dependent on the presence of A.
- Plant B: is placed in an industrially developed area (viz. the Northeast of Italy) with
alternative business opportunities, alternative sources of jobs, supplier not dependent on the Y’s
plant presence.
• Given that:
- To close one plant is required
- Shareholders prefer to close A (but the management has wide discretion)
- A is only a bit less efficient than B (essentially because of the efficiency of external public
infrastructure is better for B than A)
Which one should be closed? Plant A or Plant B?

8. Are managers and enterprises morally responsible? (partial)

The traditional interpretation of Adam Smith's "invisible hand" suggests that individual well-
being and the prosperity of nations aren't derived from moral responsibility but rather from
self-interest guided by market forces. This perspective implies that moral responsibility is
unnecessary or that the only responsibility in the marketplace is to pursue self-interest in a
rational manner.
However, Adam Smith's wider philosophical framework, including his work in "The Theory of
Moral Sentiments," complicates this view. Smith didn't limit moral sentiments to pure self-
interest or market interactions. Instead, he proposed the idea of impartial sympathy—a
capacity to appreciate and endorse moral practices beyond personal experiences, extending
to societal norms and conventions.
The "invisible hand," often associated with market mechanisms, was a way for an observer
(individual or societal) to influence outcomes without direct intervention. However, this
mechanism primarily applied to commercial activities within the market, not necessarily to
broader societal concerns like education or assistance for the poor.
Smith's work indicates that while self-interest plays a role in the market, moral responsibility
and ethical considerations extend beyond mere self-interest. It highlights the importance of
impartial and sympathetic observation in understanding and endorsing moral practices in
society, suggesting that moral responsibility isn't solely confined to pursuing one's self-
interest in the market.

Moral responsibility (MR) involves the potential for an individual to face moral praise or
blame for a particular state of the world (S). For someone to be morally responsible for a
given state S:
 Causality: The individual (let's call them X) must have caused the state S
through an action A. This causality doesn't only imply a direct one-to-one
relationship but can involve multiple factors or contributions to the outcome.
 Intentionality: Several conditions define intentionality:
 X's action A must reflect an intentional decision.
 S should be an object of X's preferences, meaning either it's directly aimed at
or accepted as a consequence in pursuit of a larger goal (G).
 Preferences must be consistent, ensuring a coherent ranking of possible
outcomes.
 X should be aware of these possible outcomes and their relations based on
their cognitive abilities.
 This intentional connection between action and outcome involves completeness
(connectedness) within the set of possible states S that X is aware of and transitivity in
their preferences.
 Awareness: X must be cognitively aware and capable of forming mental
representations and logical relations between their actions and potential
outcomes (states).
These criteria acknowledge the limitations of human cognition and rationality. If someone,
like a decision maker in business, lacks awareness or cognitive capacity concerning certain
states of the world or potential consequences of their actions, their moral responsibility
might not extend to those unaccounted consequences due to bounded rationality.

8. The social contract theory of CSR as extended CG, normative

and implementation theory PART II. ECONOMIC THEORY OF INSTITUTIONS
Q4. COASE THEOREM
a) Explain the dissent between Pigou and Coase about the economic intervention of the State
concerning externalities (what do we mean by externalities?) using the example of the
railway and the cotton fields.
b) Clarify Coase’s concept of legal rights
c) Recount the statement of the so called Coase theorem and give an illustration of it by
means of the Edgeworth box
d) What’s the ultimate meaning of Coase theorem? how much important transaction costs
are, and what’s the goal of economic policy when transactions cost are relevant?

a) Dissent between Pigou and Coase on Externalities:

  Externalities Definition: Externalities refer to the uncompensated impact of one person's
actions on the well-being of another. They can be positive (beneficial) or negative (harmful).
 Pigou's View: Pigou advocated for government intervention to internalize externalities. For
example, if a railway emits smoke negatively affecting nearby cotton fields, Pigou suggested
imposing taxes on the railway to compensate cotton farmers for the damage.
 Coase's View: Coase challenged Pigou's approach, arguing that the assignment of property
rights and the legal framework could resolve externalities without government intervention.
In the railway-cotton fields scenario, if property rights were well-defined, the affected party
(cotton fields or railway) could negotiate and reach an optimal solution without the need for
taxes or subsidies.
b) Coase's Concept of Legal Rights:
 Coase emphasized the importance of clearly defined legal rights.
 He argued that when property rights are well-defined, individuals can negotiate and
voluntarily reach agreements to internalize externalities.
 Legal rights determine who has the right to do what, and parties can negotiate to achieve an
efficient outcome.
c) Coase Theorem and Edgeworth Box Illustration:
 Coase Theorem Statement: The Coase Theorem asserts that, in the presence of well-defined
property rights and low transaction costs, private bargaining will lead to an efficient
allocation of resources, regardless of the initial assignment of rights.
 Edgeworth Box Illustration: In an Edgeworth box, two individuals (representing parties
involved in an externality) can trade resources until they reach a point of Pareto efficiency.
This illustrates that, through negotiation and voluntary exchange, the Coase Theorem can
lead to an efficient outcome.
d) Ultimate Meaning of Coase Theorem:
 The ultimate meaning of the Coase Theorem is that, in the absence of transaction costs and
with well-defined property rights, private parties can negotiate to solve externalities
efficiently.
 Importance of Transaction Costs: Transaction costs are crucial; they include the costs of
information, bargaining, and enforcement. If transaction costs are low, private parties can
negotiate efficiently. If they are high, it becomes challenging for parties to reach optimal
solutions through bargaining.
 Goal of Economic Policy with Relevant Transaction Costs: The goal of economic policy,
according to Coase, is to reduce transaction costs. When transaction costs are high, the
government may play a role in defining property rights and reducing barriers to negotiation,
fostering more efficient private solutions to externalities.
In summary, Coase's theorem highlights the role of well-defined property rights and low
transaction costs in resolving externalities through private negotiation, offering an
alternative perspective to Pigou's call for government intervention.

PART III. THEORIES OF JUSTICE

Q.6 RAWLS THEORY OF JUSTICE AS FAIRNESS
a) Remind what is the theory of justice about, what goods? What institutions?
b) Recount Rawls’s hypotheses about the “original position” whereby the principles of justice are
chosen, and in particular describe the idea of “the veil of ignorance” and the features of agents
behind the veil.
c) Recount the two famous principles of justice and their ordering, paying attention to what is called
the principle of difference (what does it regulate?),
d) Explain the model of individual rational decision which is employed for deducing the two principles
of justice and explain the choice rule which is equivalent to the second principle in particular. Explain
why these principles are consistent with this mathematical rule of choice.
e) Report the criticisms moved by Harsanyi and Nozick to the maximin principle
a) Theory of Justice as Fairness:
 Goods: Rawls' theory of justice focuses on the fair distribution of primary goods, which
include basic rights, liberties, opportunities, income, wealth, and social bases of self-respect.
 Institutions: It addresses the principles that should govern the basic structure of society,
including economic and political institutions.
b) Original Position and Veil of Ignorance:
 Original Position: It's a hypothetical scenario where rational individuals choose principles of
justice without knowing their personal characteristics or circumstances.
 Veil of Ignorance: Individuals behind the veil don't know their gender, social status, talents,
or any other personal attributes. This ensures a fair decision-making process, free from biases
based on one's position in society.
c) Two Principles of Justice:
 First Principle: Each person is to have an equal right to the most extensive basic liberties
compatible with a similar scheme for others.
 Second Principle:
 a. Social and economic inequalities are arranged to benefit the least advantaged.
 b. Offices and positions are open to everyone under conditions of fair equality of
opportunity.
 Principle of Difference: It regulates social and economic inequalities. They are permissible
only if they benefit the least advantaged.
d) Model of Individual Rational Decision:
 Original Position Decision-Making:
 Individuals choose principles rationally, knowing their choice will affect them once
the veil is lifted.
 Maximin Principle: Rawls employs the maximin principle, maximizing the minimum level of
primary goods. Individuals choose to maximize the position of the least advantaged.
Choice Rule Equivalent to the Second Principle: - Rawls links the second principle to a "difference
principle," where social and economic inequalities are permissible if they benefit the least
advantaged.
Consistency with Mathematical Rule of Choice: - The maximin principle and the difference principle
align with the idea of prioritizing the well-being of the least advantaged. The mathematical rule of
choice reflects a rational strategy to ensure fairness in the distribution of goods.
e) Criticisms by Harsanyi and Nozick:
 Harsanyi's Criticism:
 Argued for a utilitarian approach, emphasizing overall social welfare rather than
focusing on the least advantaged.
 Believed Rawls' original position lacks an objective basis for selecting principles.
 Nozick's Criticism:
 Criticized Rawls' redistribution policies, emphasizing individual rights to property.
 Advocated for a minimal state role and voluntary transactions, questioning the justice
of forced wealth distribution.
Rawls' theory of justice as fairness has faced significant scrutiny, with critics challenging the
foundational principles and the approach to addressing inequalities.
Q.7 SEN’S CAPABILITY APPORACH
What’s the difference concerning the subject matter of justice between Rawls and Sen? And in
particular:
a) What Rawls’ primary social goods are?
b) What is the meaning of “functionings” ( make some example of them)? why using this concept as
the basis for well-being does contain a criticism of social primary goods?
c) Consider the following example: You have graduated yesterday: what does it mean that you are
“happy” or you “are well” according to Sen’s idea of functioning?
d) What is the relation of functionings with capabilities, what capabilities are?
e) clarify briefly the following terms and their functional relationship
i. goods’ characteristics
ii. possible utilization (transformation) functions
iii. capabilities
iv. achieved functioning’s,
v. functioning vector,
vi. well-being assessment
e) What are the internal and external conditions for having a capability? Capabilities are both skills
and valid titles: may you explain this statement?
f) What’s the relation between freedom and well-being in Sen’s theory? what’s the meaning of the
statement that wellbeing doesn’t depend only on achieved functioning but also on freedom of
choice?
g) Is there any problem in telling that a functioning vector is better than another functioning vector?
h) Why Martha Nussbaum proposed the solution of an objective list of basic functioning? Is this
solution accepted also by Sen?

a) Rawls' Primary Social Goods:

 Rawls focuses on primary social goods, which include basic rights, liberties, opportunities, income, wealth, and
the social bases of self-respect.
b) Functionings and Critique of Primary Goods:
 Functionings: Sen's approach emphasizes "functionings," which are achieved states of well-being, such as being
healthy, educated, or having a satisfying job. Functionings are tangible expressions of what a person can do or be.
 Critique of Primary Goods: Sen criticizes the reliance on primary goods, arguing that focusing solely on resources
or goods doesn't capture individuals' diverse abilities and needs. Functionings provide a more comprehensive
view of well-being.
c) Example of Graduation and Happiness:
 According to Sen, being "happy" or "well" after graduation would involve various functionings, such as having the
capability to pursue a chosen career, engaging in social interactions, enjoying good health, and having the
freedom to make life choices.
d) Relation of Functionings with Capabilities:
 Capabilities: Capabilities are the substantive freedoms that individuals have to achieve valuable functionings.
They represent the real opportunities and potential of individuals to lead a good life.
e) Terms and Functional Relationship: i. Goods’ Characteristics: Attributes of resources or entities that contribute to well-
being. ii. Possible Utilization Functions: Ways goods can be used to achieve functionings. iii. Capabilities: Substantive
freedoms to achieve valuable functionings. iv. Achieved Functionings: Realized states of well-being. v. Functioning Vector:
Combination of achieved functionings. vi. Well-being Assessment: Evaluation of an individual's overall state of well-being.
f) Conditions for Having a Capability:
 Internal Conditions: Individual abilities, health, knowledge, etc.
 External Conditions: Social and economic opportunities, political freedoms, supportive institutions, etc.
 Capabilities as Skills and Valid Titles: Capabilities include both the skills possessed by individuals and the valid
entitlements or rights they have to access resources and opportunities.
g) Relation between Freedom and Well-being:
 Sen argues that well-being is not just about achieved functionings but also about the freedom to choose. Freedom
is integral to well-being as it enables individuals to pursue their chosen functionings.
h) Objective List of Basic Functionings:
 Martha Nussbaum proposed an objective list of basic functionings, including items like life, bodily health, bodily
integrity, senses/imagination/thought, emotions, practical reason, affiliation, etc.
  Sen acknowledges the idea of an objective list but emphasizes the importance of individuals' freedom to choose
and shape their own lists of valued functionings.
In summary, Sen's capability approach shifts the focus from primary goods to functionings and capabilities, providing a
more inclusive framework for understanding and evaluating well-being. The approach integrates freedom as a central
component and allows individuals to define their own valued functionings within certain objective constraints. While
Nussbaum proposed an objective list, Sen emphasizes the role of personal freedom in shaping one's conception of a good
life.