The Economics of Business Culture.

• Author: Graeser, Paul

Casson (hereafter C.) examines entrepreneurs' role "not only in the production and exchange of goods but also in the transmission of cultural values". His leitmotif is the economic effects of moral standards, functioning through the emotional response of guilt. Economic leadership thus includes manipulating--his word--producers to a higher level of economic performance than would be induced by prospective income alone. Such leadership raises efficiency, perhaps dramatically, by reducing slacking and by reducing cheating (lack of trust being fatal to efficient exchanges between economic agents). The rationale for emphasizing emotional reward/punishment is that it is more cost effective than monitoring, with its contractarian policing, fines, lawsuits and high information costs. However, "economic theory ... has concentrated on the organization of monitoring".

3. develops a series of simple games in which a "Stackleberg leader |is~ dealing with a Cournot follower". Each follower faces a binary choice between material benefits, one of which includes feelings of guilt and the other does not. By manipulating this guilt, the leader influences the followers' choices and thereby raises society's income. But manipulation is not free. In meeting its costs, an altruistic leader will take only so much of social income as is optimal for achieving the desired higher per capita income.

For simplicity, the followers are all alike except in their propensity to experience guilt. A crucial variable is this varying sensitivity, s, to manipulation via guilt, such that 0 |is less than or equal to~ s |is less than or equal to~ 1; s is "uniformly distributed across the population". But the leader's manipulation program can only be global, and not one-on-one, so the leader finds diminishing returns to manipulation as only insensitive followers are left to "convert" to the more productive (no slacking, no cheating participation) of the binary choices. Except for certain cases of instability over time |Ch. 4, 5~, this also assures convexity.

The theory is illuminated through a series of cases. The first deals with simple slacking. At an increasing material cost of moral manipulation, an altruistic leader raises the guilt penalty for slacking to a level that is optimal for increased per capita income. Next, are two cases of pairwise random encounters between traders, the first being one-off decisions to trade honestly or to cheat, and the second the same but with...