In the world of finance, one often talks of a risk premium.
It is how much more an investor must expect to be paid in order to take on
increased risk. This risk arises from the uncertainty over the outcomes of transactions
and investment. In general, the premium flows from the more risk averse to the
less risk averse. Those who have a strong preference against risk (maybe
worries about risk keep them from sleeping at night, or impair them with
anxiety) will trade off lower expected returns for a greater reassurance that
“they have what they have.” Those
who are barely bothered by risk (or even enjoy it) find an extra source of
income. This logic can also be
applied to morality.
Our society likes to talk of encouraging more ethical/moral
behavior and might suggest increasing the rewards for people being more moral
(and in some religions suggesting that there are heavenly, after-life rewards).
However, as the above suggests, the
flow of pecuniary benefit will tend to be from those who choose to be
moral, or at least want to be seen as moral, to those who are either
indifferent or disinclined to moral behavior. Indeed, the greater the
discrepancy in moral preference between the most moral and the least moral, the
greater the premium paid by the former to the latter.
Now, consider
the notion of moral
capital, the capacity to behave
morally. This capital is generated when people choose to behave morally, and in
the process show others how to act morally. In particular they must demonstrate
what is to behave morally, as well as the non-pecuniary benefits from it (e.g
being happier). It is reasonable
to assume that part of social cohesion, and hence economic well-being for
society as a whole, is dependent on the amount of moral capital. The existence
of an immorality premium implies an interesting dynamic. As moral capital
increases, the greater the immorality premium. The greater the immorality
premium the stronger the incentive to immorality, and hence a contango of moral
capital. This incentivizes society to become less moral, and a degradation of
well-being. However, this also would be associated with a decreasing immorality
premium. Eventually the premium becomes small enough that moral capital starts
accumulating again, thus generating a morality cycle (similar to a business
cycle).
