Responsibility in Finance, Economics, Management and Information Technology

The most important function of derivative products should be to hedge against financial risks. The total nominal value of these products, however, is at least ten times the world GDP. In most cases, what seem to be hedging products are, in reality, bets - such as credit default swaps (CDS) - on defaults of companies or countries. These bets generate systemic risks which justify further issues of structured products. This research analyzes the wrong incentives these products might create in terms of investment decisions.

Combining expertise from finance, economics and psychology, we examine the influence of commitments to honesty and situational factors (e.g. financial incentives, depletion) on decision making, the focus being on decisions of managers and investors. Based on various experimental studies, we find that individuals endorsing honesty as a binding value (i.e., protected value) are more likely to avoid earnings management, even when it is personally costly. In addition, investors endorsing honesty as a protected value are more than other investors likely to make their investment decisions dependent on the perceived honesty/trustworthiness of a firm (manager). Consistent with this, we conducted complementary market analyses. They provide first evidence that the market assigns higher market values to firms whose CEOs are committed to telling the truth (avoiding earnings management). These studies suggest that managerial honesty does pay off.

This research project studies the stability of socially responsible behavior in markets. We develop a laboratory product market in which low-cost production creates negative externalities for third parties, but where increased production costs entirely mitigate the externalities. We use this design to study the conditions under which markets support “fair” or “moral” production. Our data reveal a robust and persistent preference for positive social impact: Socially responsible products represent a market share of approximately half of the goods traded and they typically trade at higher prices than goods that impose negative externalities. Socially responsible behavior in the market is generally robust to varying market characteristics, such as limited consumer information and increased seller competition. Market fairness is, however, slightly lower than fairness behavior measured in comparable individual decisions.

In this research project we analyze the implementation and institutionalization of Corporate Social Responsibility (CSR) policies at Transnational Corporations (TNCs). Specifically, we focus on legitimation strategies of TNCs dealing with corruption. For a number of years, TNCs have formulated anti-corruption policies and implemented organizational structures and procedures in order to impede and detect corruptive practices. However, as recent scandals have shown, organizational corruption is still an endemic phenomenon. Corruptive practices faced by TNCs inside and outside their sphere of influence pose a threat to their legitimacy as responsible actors in today’s global governance structures. In this project, we will theoretically discuss the implications of corruption and corruption control strategies as well as empirically examine how transnational corporations deal with this issue. The aim is to gain more insights into relevant factors that drive the institutionalization of anti-corruption policies within organizational structures and processes and the factors that help explain the success or failure of implementation.

An increasing amount of technologies are being used that involve information on the location of objects or persons. In addition to the widely known geolocation by satellite via GPS, today at least 12 more technologies are being used that make it possible to determine the location of devices, and indirectly that of their users. This may happen in real time (tracking) or after a delay (tracing) depending on the technology. The possibility to determine the location of a person often emerges as a side-effect of other functions the person is using, such as having a phone call, accessing the Internet or taking a picture. By using a qualitative risk assessment approach developed in an earlier study for the Centre for Technology Assessment (TA-SWISS), the project team identified the need for political action in several areas (from surveillance and child protection to critical infrastructures) and formulated recommendations to legislative bodies and stake­holders to minimize the societal risks of these technologies.