The market failures approach to business ethics argues that economic theory regarding the efficient workings of a market can generate normative prescriptions for managerial behaviour. It argues that actions that inhibit Pareto optimal solutions are immoral. However, the approach fails to identify goods that should be regulated or prohibited from the market, something common to the moral limits to markets approach to business ethics. There are, however, numerous assumptions underlying Paretian efficiency, including some about the preferences of market participants. Trade (...) in some goods violates some of these assumptions, and so these goods are morally suspect and can be understood to indicate that the market for these goods is not moral. This creates grounds sufficient for regulating, and possibly prohibiting, these goods. To help determine whether it is then necessary to regulate the goods, I propose a supplementary economic analysis to ascertain why an assumption regarding a particular preference is being violated. (shrink)

How should we distinguish between ethical and unethical ways of pursuing profit in a market? The market failures approach (MFA) to business ethics purports to provide an answer to this question. I argue that it fails to do so. The source of this failure is the MFA’s reliance on Pareto efficiency as a core ethical principle. Many ethically “preferred” tactics for seeking profit cannot be justified by appeal to Pareto efficiency. One important reason for this is that Pareto efficiency, as (...) understood by the theory of welfare economics upon which the MFA relies, assumes a static conception of efficiency. This is a problem because many ethically “preferred” tactics can only be justified by appeal to dynamic efficiency considerations. I argue that, instead of Pareto efficiency, we should look to the value of wealth creation to understand the ethical constraints on how market actors may pursue profit. (shrink)

In recent years, insurance companies have begun tracking their customers’ behaviors and price premiums accordingly. Based on the Market-Failures Approach as well as the Justice-Failures Approach, I provide an ethical analysis of the use of tracking technologies in the insurance industry. I focus on the use of telematics in car insurance and on the use of fitness tracking in life insurance. The use of tracking has some important benefits to policyholders and insurers alike: it reduces moral hazard and fraud, increases (...) actuarial fairness, and incentivizes safe behavior. These benefits, however, are outweighed by significant moral objections. First, the use of tracking technologies significantly undermines the fairness of the interaction between insurance companies and policyholders. Specifically, the use of tracking eliminates information asymmetries, but in such a way that favors insurers exclusively. Furthermore, tracked behaviors and the ability to choose to behave safely are highly correlated with other variables such as income. Therefore, tracking-based insurance relies on and exacerbates existing inequalities and injustices, which undermines the benefits that tracking is supposed to introduce. (shrink)