Nova workboard

a blog from young economists at Nova SBE

The costs and the consequences of dishonesty

Dishonesty, personal interest, advertising misrepresentations and so on have assumed an important place in the organizations. In any company, people are motivated by factors such as sales quotas, career advancement, profits and success. Dishonest tactics can be implement by companies in their external dealings – those with customers, suppliers, regulators and stockholders – for example, in order to increase their short-term profits.

But how much are the costs of dishonesty? To answer to this question it is necessary to use the Lemons model, which explains the consequence of information asymmetry when the seller knows more about the good than the buyer.

Let’s consider a market in which there are two goods: for example, honest employee and dishonest employee. The buyer don’t know the quality of each employee, therefore his problem is to identify the quality. In the market, some people are willing to offer inferior goods that drive the market of existence; hence, the fact that dishonest dealings tend to drive honest dealings out of the market represents the major cost for dishonesty.

The cost of dishonesty lies in the amount by which the purchaser is cheated and it must include the loss incurred from driving legitimate business out of existence cause by the presence of people that want to pawn bad assets as good ones.

Dishonesty, despite being quite practiced by various organizations, has several negative consequences for them. The most outstanding is that the company will develop a weak reputation among their clients, business partners and competitors, who will gain advantages in the market.

Secondly, when a company hires employees, assures that they have the same values as the firm. After the dishonesty comes into play, the values of each may diverge in opposite directions, which can cause greater instances of illness and absenteeism, lower job satisfaction, decreased productivity, and in most of the cases, workers leave to work for companies with values more consistent with their own. Therefore, the company will have to support more costs.

Another problem is caused by the increased surveillance. Usually, when in an organization occurs deshonest practises, surveillances is increased to protect all the workers, but instead this have a negative impact on employee, leading to the degradation of the work environment, and consequently to adversarial relations between employer and workers.

A major question arises from this: if organizations who act dishonestly see that they have more costs, why they do not act ethically? Perhaps because the effort must begin at the top or because it is necessary to implement policies to encourage the same behavior from employees in their external dealings and between co-workers. With an effort by all the employees and with a regularly measure of the organization’s ethical reputation, companies could maintain high standards of conduct and count with honest workers and, more important, could avoid various hidden costs of dishonesty.

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Author: studentnovasbe

Master student in Nova Sbe

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