Handbook of Economic Organization
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Handbook of Economic Organization

Integrating Economic and Organization Theory

Edited by Anna Grandori

This comprehensive and groundbreaking Handbook integrates economic and organization theories to help elucidate the design and evolution of economic organization. Economic organization is regarded both as a subject of inquiry and as an emerging disciplinary field in its own right, integrating insights from economics, organization theory, strategy and management, economic sociology and congnitive psychology. The contributors, who share this integrated approach, are distinguished scholars at the productive peak in their fields. Each original, state-of-the art chapter not only addresses foundational issues, but also identifies key issues for future research.
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Chapter 7: Ethics, economic organization and the social contract

Lorenzo Sacconi

Extract

This chapter introduces a notion of an ethical social norm that integrates its description as a self-sustaining regularity of behavior with the normative meanings of the statements by which a norm is formulated in the moral language. This definition is applied to organizational ethics where the main problem – abuse of authority – is identified with the help of a critical reading of new-institutional economic theory of the firm. Given a game-theoretical definition of an institution, it is then shown that only by integrating it with the social contract as shared mode of reasoning may the process of convergence to the beliefs system that backs an equilibrium institution be started. Thus the chapter illustrates the egalitarian social contract as both an impartial justification for organizational constitutions and as an equilibrium selection device. It is shown that equilibrium selection through the social contract solves the problem of legitimization of authority in the organizational relation between a non-controlling stakeholder and the entrepreneur or the management of a firm, holding hierarchical authority over the stakeholder. The result is a fiduciary relation between a stakeholder (the trustor) and the owner, director or manager (the trustee) based on fair distribution of the cooperative surplus. This is the basis for the explanation of corporate social responsibility, understood as an extended model of organizational governance that generalizes to all the possible ownership forms of the economic organization, giving credit to the idea that social responsibility is an overarching social norm in the field of organization governance

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