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In Search of Honesty and Altruism

By Rania Abdul Rahim Mousa

Robin Cosgrove Prize for Ethics in Finance, Fall 2007

Rania Abdul Rahim Mousa

Ethical dilemmas and ethical violations in finance can be attributed to an inconsistency in the conceptual framework of modern financial economic theory and the widespread use of a principal-agent model of relationship in financial transactions. The financial-economic theory that underlies the modern capitalist system is based on the rationale of profit maximization, whereby individuals become self-centered, and aim to maximize their own profits and serve their own interests. The principal-agent model of relationships refers to an arrangement whereby one party, acting as an agent for another, carries functions on behalf of that other.

If the financial-economic theory accepts the fact that behavioral motivations other than that of wealth maximization are both realistic and desirable, then the agency problem that economists try to deal with will become a non-problem.

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