Saturday, October 22, 2005

Game theory,economics and corruption

Game Theory ,economics and corruption
Despite some critics, there is widespread acceptance of the key role Game theory has had to understand human and business behaviour.. The basic question is ¿ Whether our competitors are rational, and try to maximize theirs benefit, how come that such behaviour may influence our own decisions about to chose the optimal strategy for prices, production or innovation?. Take a look to what it is going on with air lines `s reaction to the increases in oil prices, How much they do care to make the first move to increase ticket prices.-
The same reasoning may be applied to corruption. The figure below, shows the case for two people “a” and “b”, They do not know each other , before doing a commercial transaction which in general, give high value to credibility, and honesty. “0” means loses , and “1” means a gains. In such a case, they would chose quadrant IV, (1a,1b, the lower right corner) and the no corruption solution (NC) would prevail. However, at society level with no clear incentives to favour the same values, which means a weak judiciary and legal system to make sure everyone is equal to confronts the law, or elusive procedure related to check out decisions at a management level, the result would be the quadrant I, (0a,0b,)the one of the upper left corner! in which the society loses. Nobody cares to protect his integrity, whether they feel alone and therefore with no reward in keeping that value. In such a case ,it does not matter to follow a corrupt pattern of behaviour. Society as a whole make a lose because of corruption. The recent report coming out from Transparency International,(GCR 2005, ) shows countries with different levels of corruption ranking from high to low levels. Those countries with higher level of corruptions, are the ones usually considered to have lower economic growth expectationsl . Corruption increases transaction cost for business decisions.
On the other hand, those countries with low level of corruptions have a more stable democracy and prosperity.
The figure shows options for a society
between corruption(C) and no corruption (NC)
Cb NCb

Ca 0a,0b 0a,1b

NCa 1a,0b 1a,1b

Therefore, the challenge is to keep society and business away from the suboptimal quadrant I (0a,0b).This means to improve the quality of legal systems to impose sanctions, the accountability of decisions related to the allocations of resources whose utilizations is a matter of public good faith, and transparency when it comes to check out administrative procedures -

Tuesday, October 11, 2005

Business socially responsible

Following the  global trend, firms has been changing in Chile the way they face   its internal clients, its consumers and society. This change is explained by a variety of factors. Lets take for instance workers ‘s abilities .In the past century, most of  his  abilities were based on physical strength, discipline and dependency .However ,the twenty one century‘ s worker  abilities endowment,  means a greater autonomy and  self confidence to carry out innovative productive process to deal with the complex phenomenon of  the new information technology applied on business strategic decisions.   On the other hand, reengineering by itself ,is not enough to cope with complex issues such as the organizational values. From the internal point of view, there are new challenges for organizations whose characteristics are a greater horizontality and a higher relational component generating incentives to include  social and private values into the management decisions criteria.-.  
The old paradigm of  Taylor ‘s firms  based on its own profit goal as a matter of reducing cost is  moving away ,  to make room for a  new vision:  The business social responsibility (Corporate Management) .It implies  business management  more linked to transparency, communication, and accountability. This is a new business ethics, which   impact positively on  profits result, just as the traditional  cost reducing approach.-
From the external point of view, the firm is increasingly integrating itself  in a series of  different network .Input Suppliers, services suppliers ,Outsourcing suppliers, Private Banks ,environmental organizations, financial markets , regulatory agencies ,customers needs, government organisms and the like;  shape the way the firm   moves on over competition forces to get profit . It is not just the firm alone facing competition, it is the network competition as a whole. Any wrong doing will affect assets prices and economic value, some times with a devastating effect. Therefore, business failure involves  a broader spectrum of actors, including  not only banks, and owners , but consulting firms, community  needs.-
This new scenario force the firm to identify common values within these networks, otherwise there is no way to get trough to get higher profit.. The markets is watching closely for opportunities, such that business must stay where those opportunities are. Common values reduces the transaction cost for doing business, and get firms and its networks partners, closer to each other allowing more cooperation. Business social responsibility is like a bridge to reach out   those new opportunities.-
From the ethical point of view, this transformation is above the widely known “dualistic ethics approach ”, which means that morality of each business act, is more important and it is before  than the  financial results. The business social responsibility may be an effort to morally justify the legitimacy of profit.  
A different approach ,and confronting the “justification issues”, is related to  the “implementation  issue” . This focus  imply the verification of empirical behaviour and its implications for a community, as a reference to justify its ethical value. Business ethics is more related to real behaviour. Maximization is strongly connected with optimization of resources, such as the environment, and entrepreneurships . Considering these approach, Business social responsibility would mean  the  new business ethic, as long as the community as a whole gives value to it , which  it seems to be the case. More private firms are  trying  to get  considered as “Socially Responsible”.-