The Economics and Ethics of Soft Dollar Brokerage

• DOI: http://doi.org/10.1111/0045-3609.00035
• Date: 01 March 1999
• Author: D. Bruce Johnsen
• Published date: 01 March 1999

Zicklin Conference

The Economics and Ethics

of Soft Dollar Brokerage

D. BRUCE JOHNSEN

INTRODUCTION

The topic of business ethics is one about which I have mixed

feelings. As a scholar whose interest focuses almost exclu-

sively on the economics of property rights, broadly con-

ceived, I have sympathy for the prospect that ethical norms can

benefit society by helping private parties form accurate and appro-

priate expectations in their business transactions. Compared to the

alternative, certainty is a good thing, for it allows us to invest wisely

our scarce time, attention, and money. But in any system of social

control there will always be both Type I and Type II errors, and busi-

ness ethics is no exception. My concern is that self- interest, greed,

or good old fashioned hubris will often come disguised as business

ethics. Thus, we should keep in mind that the members of a regu-

lated industry invariably condemn as unethical price cutting and

other business practices that take away their customers. And to

paraphrase Ronald Coase, innovative business arrangements that

are efficient but misunderstood are often condemned either as

anticompetitive or as downright dishonest.

© 1999 Center for Business Ethics at Bentley College. Published by Blackwell Publishers,

350 Main Street, Malden, MA 02148, USA, and 108 Cowley Road, Oxford OX4 1JF, UK.

D. Bruce Johnsen is an associate professor at the George Mason University School of Law in

Arlington, VA.

I would like to thank Tom Dunfee for encouraging me to think carefully about the ethical issues

raised by soft dollar brokerage and for inviting me to present my views at the Zicklin Center’s con-

ference on Ethical Issues in Financial Services, held at the Wharton School in late May, 1998. I

thank the panel discussants, Marshal Blume, John Boatright, Dennis Logue, and Alan Strudler,

for their thoughtful comments and colloquy. ThoughI accept responsibility for errors, I am confi-

dent that responsibility will be efficiently allocated regardless of the initial assignment of liability.

Business and Society Review 104:1 21–28