The Economics of Higher Purpose

Citation data:

SSRN Electronic Journal

Publication Year:
2013
Usage 2752
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SSRN
SSRN Id:
2362454
DOI:
10.2139/ssrn.2362454
Author(s):
Anjan V. Thakor; Robert E. Quinn
Publisher(s):
Elsevier BV
Tags:
Higher purpose; budget constraints; wealth maximization
article description
We develop a theory of how the intersection of business goals and the pursuit of "higher purpose" — something that produces a non-pecuniary social benefit valued by the principal and the agent — affects economic outcomes. Two types of principals — those pursuing only wealth maximization and those pursuing both wealth and a higher purpose — are considered. These are typically viewed as competing approaches to running organizations. However, the theory we develop, which shows that the pursuit of higher-purpose projects reduces labor costs and increases capital investments, highlights a potential complementarity between the principals pursuing a higher purpose and those exclusively pursuing wealth. The complementarity arises because the pursuit of higher-purpose projects by others can relax budget constraints for wealth-maximizing principals, and the presence of purely-wealth-maximizing principals may be essential for the higher-purpose-pursuing principals to obtain external financing. The absence of either type of principal may lead to a market breakdown involving no projects being undertaken.