The Honor System and Being Cheap

What does it take for people to act honestly in business? As an accounting student, I learn a lot about how businesses try to optimize employee honesty in my controls class. Our school is working hard to implement ethical discussion in the classroom, and I will be teaching it, to some degree, to students come this fall.

I don't want to talk about a solution, as much as I want to talk about a cause: People are Cheap. (cheap like Marquis is cheap, or Koster)

The Freakonomics guys wrote about it extensively, when they discussed Paul Friedman's bagel sales. I know this article looks really long, but it is a pretty incredible socio-economic case, and well worth the read. Other cool examples is the Radiohead In Rainbows album experiment, where people paid whatever they wanted to download mp3s from the band. I blogged about this before. Nobody knows how much money Radiohead made, because they chose not to release that data, but when the album was finally sold in stores, it sold very well.

I'm amazed by how much time people in the open-source community invest in their work. Why would these people work so hard on something they aren't paid for?

Because they love it.

But money is starting to creep in to these circles. And it looks like the only viable way to make money is to use the popularity of open source, or other free programs, as platforms for advertising. I wonder how that will change the environment in the future - how will blogging change as more people make a career out of it?

Freakonomics just recently blogged about two more honors systems: New York State collecting sales tax from Internet sales, and rural Japanese farmers leaving produce stands unmanned. I like the New York example more, because there is more there to talk about. New York is now demanding the largest Internet retailers to add sales tax to all items shipped there. No doubt more states will follow, and no doubt a lot of business will go to smaller, under-the-radar online retailers.

Or will it? Are the big Internet retailer brands established enough to maintain their market share? Can the Internet come through on it's promise to offer the most efficient and effective information, therefore guiding consumers to cheaper, albeit less popular, retailers? I'd bank on he latter of the two, because god knows we're going to be as cheap as possible.