AN ADVERSARIAL ETHIC FOR INVESTING: Introducing Investors to the Market Failure Approach

Abstract

Much of today’s discourse on ethical investing is concerned with incorporating social responsibilities into the practice of investing. The debate is often concerned with the moral responsibility of shareholders and complicated by their limited influence. As a response to the ongoing debate, this thesis sets out to construct an ethical framework in which the moral responsibilities of actors on the capital market are derived from the institutional framework of the capital market. I start out by taking a simplified concept of investing, namely that of productive investments only. Continuing, I consider the adversarial nature of these investments, which entails that investing requires antisocial behavior in order to produce beneficial outcomes for society as a whole. However, the logic by which the capital market is supposed to provide an efficient distribution of resources is based on an idealized theory of investing. The imperfect nature of the capital market implies that some strategies can lead to an inefficient outcome. Exploiting these strategies, I conclude, is immoral, for it turns a necessary evil into a mere evil. This approach serves to consider the acts of investing in light of its designated purpose, namely to benefit society as a whole. Furthermore, this approach provides a new look on shareholding, by considering it a fix to a capital market failure.