Using Agents
• Use agent
(e.g., trade assn.) to certify seller.
• Use agent
(expert) to certify the commodity.
• Use
government to certify the commodity or the seller (licensing).
• Other
government regulatory interventions in which government agents control the
behavior by directive.
• Note that
the use of agents to certify or to direct, i.e., the delegation to agents,
simplifies the decision task for the consumer. But it inserts an additional
stage in the choice process, and that can be costly.
Using incentives/reward systems
• Negative
rewards for individuals who generate undesirable behaviors/outcomes (e.g.,
lower commissions for returns based on misrepresentation).
• Positive
rewards for desirable behavior/outcomes produced by individuals.
• Tie
positive/negative rewards to organizational outcomes (e.g., tax incentives for
fewer workplace injuries).
• Note that
the incentives can be set and monitored by agents such as government, but that
the nature of incentives means that the choices of response behavior are made
by the actors. Those actors can still make inappropriate choices due to
insufficient or badly-designed incentives or preferences that diverge from the
expected. Although the actors
receive positive or negative rewards, the decision task placed on them may
remain formidable if they lack the expertise to choose the alternatives that
will be best for them.
Using interventions based on activity observations
• Use
inspectors who observe the activity in progress.
• Use
inspectors who audit records of activities.
• The use of
inspectors assumes that knowledge of adverse activities will be sufficient to
generate corrections either from the actors or from outside agents.
Using knowledge provision to empower actors: using disclosure
and exposure
• Use
routininized information disclosure of good or bad performers (e.g., experience
rating as on the web; third party providers of ratings; media reports).
• Create
threats of exposure: encourage muckraking; provide mechanisms to widely share
and publicize misdeeds; create competitions to “escape the bottom”
(e.g., all firms are pressured to achieve 100% participation in the United Way
among employees); use reputation for competitive advantage.
• Educate
consumers.
• Educate
sellers.
• This
alternative presumes that actors have sufficient expertise to understand and
act on the disclosure, and that they want to do so, i.e., that adverse
conditions do not benefit them. This also presumes that reputational effects
are meaningful enforcers.
Using ethical statements and norms
• Use a code
of conduct/code of ethics.
• Reinforce
the use of norms that demand unselfish, reliable, and/or honest behavior, e.g.,
the fiduciary norm, promise-keeping, etc.
• Create
organizational and interorganizational systems that demand or reward trust and
honesty. Rely on personal networks and relationship building to ensure
trustworthy behavior.
• Such
systems can reduce the need to provide external controls, whether by incentive
or agent directive, and they reduce the costs of checking on compliance. But
they do not necessarily solve the problems of lack of information or expertise.
Codes of ethics may be mere window-dressing without enforcement and/or
modelling by top leaders. And where relationship building is the mechanism of
trust-building, it does not guarantee ethical behavior outside the network.