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7 The Shift to Weaker Morality, Weaker Law, and Stronger Market Discipline
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Published:November 2005
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Abstract
While opportunities to abuse trust and the drive for more have been rising, the barriers against dishonest behavior have been falling. There are many barriers to dishonesty, but among the main barriers are three. One is moral behavior, where trusted persons exercise self-control over temptations. The second is self-protection, where trusting people protect themselves with the help of market sanctions against abuse of trust. Market sanctions represent mostly self-protection of many people, each acting in his or her own interest. The third barrier to abuse of trust is the law. Morality refiects mainly the “trust” component in “trust but verify.” One can trust people who exercise self-control in face of temptations. Self-protection and the markets refiect mainly the “but verify” component in “trust but verify.” One must verify the other person’s statements and promises. The law refiects and supports both the “trust” component and the self-protection “verify” component. Some rules are designed to put barriers to temptations. These rules are addressed to trusted persons. Some rules require trusted people to disclose true information. These rules are addressed to the recipients of the information, and they are expected to decide for themselves whether and how to engage in business with the disclosing parties. And some rules go further and withdraw legal protection from people who do not protect themselves from the fraud of others, even though they can do so.
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