ETHICS AND EXTERNALITIES - AGRICULTURAL STEWARDSHIP AND OTHER BEHAVIOR - PRESIDENTIAL-ADDRESS

Neo classical micro-economic theory of the firm and household rests on the foundations of profit maximising and utility maximising behaviour respectively. This paper explores the issue of whether market efficiency can be improved when economic agents' behaviour is motivated by ethical objectives such as fairness and altruism. In particular the paper examines agricultural stewardship as an ethically motivated form of behaviour, which is profit sacrificing, but which improves economic efficiency by reducing environmental externalities. The paper also reiterates the limitations of Pareto optimality as a criterion of economic welfare because its rejection of interpersonal welfare comparisons rules out ethical considerations of income and wealth distribution.