ONLINE - Competition and Misconduct

21.04.2021 14:15 – 15:30

INSTITUTE OF ECONOMICS AND ECONOMETRICS SEMINAR / ABSTRACT

Misconduct is widespread in Finance. Mis-selling, mis-representation and negligence harm consumers, or society, while raising profits. This paper presents a model of competition and misconduct in which managers are ethical. Managers must find a balance between their ethics, the actions which maximize their profits, any risk of regulatory sanction, and risk of reputational cost. Market structure raises two issues. First concentrated markets allow managers to capture large rents from small levels of misconduct, hurting many people only a little. But in dispersed competitive markets profits may be meagre without misconduct. Modelling these competing tensions theoretically I characterize when competition encourages misconduct.

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