The Economics of Higher Purpose

The Economics of Higher Purpose

Anjan Thakor, Robert Quinn

Series number :

Serial Number: 
395/2013

Date posted :

December 01 2013

Last revised :

December 06 2013
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Keywords

  • Higher purpose • 
  • budget constraints • 
  • wealth maximization
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.

Authors

Real name: 
Robert Quinn
Real name: 
Research Member
John M. Olin School of Business, Washington University, St. Louis