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Helping the Invisible Hand A Theory of Endogenous Mutual Concern

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This paper develops a theory of endogenous mutual concern. The mutual concern or the morality of economic agents is seen as a means to reduce the inefficiencies of markets in an environment where the enforcement of prop- erty rights is costly. We show that rational agents have an incentive to invest resources to create a mutual concern. Furthermore, the strength of the mu- tual concern depends on the technologies of production and appropriation and defense. People in economies with a high natural productivity invest more re- sources in the creation of a mutual concern than people in economies with low natural productivity. By the same token, morality is a means to reduce the frictions in an economy only if the decisiveness of appropriation and defense is relatively similar.
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