Towards an economy of sharing: System thinking from business models to circulation processes and symbiosis

In line with our mission to assess sustainable markets as a whole, Misum invited sociologist Frank Boons from the University of Manchester to discuss approaches to a sharing economy as “ecosystem of provision”. Boons presented his paper “Towards a sharing economy – Innovating ecologies of business models” (authored together with Nancy Bocken from Lund University) and underlined the need to extend the logic of business models in the context of a sharing economy: Instead of firms seeking to maximize individual profit, sustainable business models have to be understood as one node in a net of social practices to provide certain goods and services to fulfill human needs.

Figure 1. Analysis of sharing economies: Processes and practices are as important as agents themselves

While research and political interest in the collective use of goods and particularly the reuse of materials has grown exponentially, little attention has been paid to the social processes behind sharing and circular economies. Boons pointed out that most often the focus is either on entities (producers and consumers) between which goods and material is circulated, or the material flows themselves (e. g. Ellen Mac Arthur Foundation https://www.ellenmacarthurfoundation.org/circular-economy/infographic, , Haas et al. 2015). This conception limits the opportunities for sharing and provision, according to Boons: “There are many possibilities to solve sustainability problems already, but they are outside the ‘business model sphere, if you think of a business model related to profit. Therefore I like to emphasize the ecosystem perspective.” In such systems, different agents with different rationales are interacting with each other, and just like in nature, there is potential for mutualism, competition, parasitism and symbiosis as four big phenomena. Mainstream Economics tends to consider compensated forms of sharing and according business models (cf. figure 2), and the provision of public goods or the “tragedy of the commons” (Hardin, 1968) have been big problem childs in this field ever since (and labelled as “market failure” by economists).

Figure 2. Mainstream Economic lenses don’t account for all the different scales and rationales behind sharing

Taking the ecosystem perspective instead, more agents and mechanisms do play a role, for instance public agents, peers and various kind of institutions and values. Boons stresses that understanding sharing only in economic or materialistic terms, the resulting business models are not necessarily sustainable from an ecological or social point of view. In the car industry, for example, a lot of machinery and other parts is recycled from old to new cars, but obviously car use (’with it’s associated GHG emissions) is not sustainable because of this. Following a vast literature review and creating a systematic framework around sharing economy, Boons and Bocken (2018, p. 50) identified four main questions for further examination, with the focus on system needs and effects (instead of goods, materials and firms):

RQ1 To what extent are interactions between business models shaped by the particular need that is provided for? 

RQ2 How do interactions between business models affect ecological and social sustainability of provision for human needs, and what tools can be used to assess this? 

RQ3 What are typical pathways through which types of provision (such as sharing) become dominant in a system of provision, and what conditions shape these pathways? 

RQ4 How can experimentation with sharing business models be facilitated in a way that contributes to (environmental) sustainability, including the elimination of entrenched unsustainable practices? 

From ecosystem thinking to approaching the ecosystem

As depicted in figure 3, the development of sustainable business models of sharing is based on a range of different processes, strategies and conditions in the system, similar to natural ecosystems: At the beginning, there might be resources that are not competed and can be easily exploited by new business models, and practices evolve by design and joint learning in niches. But to grow and eventually transform a system of provision (as broader definition for a certain “market”), different conditions and mechanisms are prominent, for instance the availability of technical infrastructure, imitation and adaption by other business models as well as political actions. 

Figure 3. Steps depicting the amalgamation of individual S-BM into a sharing economy, with main mechanisms and conditions. 

How can these processes be acknowledged and facilitated in practice? Frank Boons works at a project initiated by the British Environmental Ministry to explore “How systemic thinking can be brought into policy making on the Circular Economy” and résumés that the first step has to be to make people aware of how their thinking is bounded to specific logics, and introduce them to other parts and practices of the system. The project above, for example, is aligned to the department “Resources and Waste”, which by design considers only certain kinds of regulations. To scale economies of sharing (corresponding to steps c, d and e in figure 3), the different agents have to communicate to each other about their perceptions of the provision of goods and fulfillment of needs, to find out which means and strategies can be used, with potentially new partnerships or new political instruments. 

So far, sustainable business models and sharing systems appear mostly on a local scale (and often without a profit motive), for instance repair cafés or swaps for clothes and other goods. Important questions to answer from a sustainability point of view are thus rather how to extend the user base as well as to question the speed and large scale of material circulation and, related to this, systematic lock-ins of not really sustainable practices (like the example of car industry). This involves new technological, social and legal solutions to extent and open up the classical producer-consumer dualism towards symbiotic practices, and social and natural scientists, entrepreneurs and politicians have to carefully listen to each other to support such sharing systems.

Text by Johanna Klatt, research support and project manager at Misum, as follow-up from the Misum Research Seminar and interview with Frank Boons (May 2019 at SSE).

References and further reading:

Boons, F., & Bocken, N. (2018). Towards a sharing economy – Innovating ecologies of business models, Technological Forecasting & Social Change, 137, 40-53.

Haas, W., Krausmann, F., Wiedenhofer, D., & Heinz, M. (2015). How Circular is the Global Economy?: An Assessment of Material Flows, Waste Production, and Recycling in the European Union and the World in 2005, Journal of Industrial Ecology, 19(4), 765-777.

Hardin, G. (1968). The Tragedy of the Commons, Science, 162, 1243-1248.

Ostrom, E. (2015.) Governing the Commons. The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press.

Promises and dilemmas in South Africa: The meeting of the UN PRME champions

Businesses and business leaders have an important role to play to achieve the United Nation’s Sustainable Development Goals (UN SDGs) – based on this understanding, the UN Global Compact, one of the most prominent coalition of CEOs that adjure the societal responsibility of companies, founded UN PRME: Principles of Responsible Management Education. They have acknowledged that business schools are crucial for facilitating economic transformation, by scientifically assessing businesses’ role in society, evaluating their practices, and educating future leaders.

The problem: Universities have to change themselves first in order to achieve that. How do we do this? The idea of PRME is to provide space for dialogue, share best practices, try new methods and developing guidelines where to go. There are various collective projects and working groups by now, and regular meetings to explore how to improve. In the beginning of March, I went to South Africa to meet a group of “champions”, representatives from universities that are especially engaged within PRME, to discuss how to design research projects to foster the agenda 2030 and mainstream the SDGs. 

Dealing with dilemmas: Open up to make it better

This leads to problem number 2: How to justify to fly to another continent in order to become more sustainable? A major issues for responsible and sustainable management education is to reflect on current academic practices at business schools, which includes the frequent flying of scholars. This particular topic was not really touched at the meeting at the GIBS Business School in Johannesburg, for obvious reasons. But throughout the four days it was emphasised that also business schools have to change “business as usual”, and that applying the methods of specific disciplines and communicating results in specific journals can not be the first choice to contribute to sustainable development in practice. Instead, we have to employ new means of knowledge transfer – at the end of the pipeline. And at the beginning, research has to begin with opening up to different perspectives concerning wicked societal problems.

At GIBS, scholars deal with urgent South African challenges like extreme inequality between major societal groups, which is linked to health and educational issues as well as questions of institutional change, energy transition and environmental degradation. After discussing the special requirements for enhancing sustainability research from an academic institutional point of view, e.g. the practicalities around a more interactive study design, new outlets or alternative funding sources, the core of the meeting was to get out of the university context and to be confronted with the realities of orphans in slums, teachers in private and publics schools, energy monopolists, and social entrepreneurs.

How does a low-carbon energy provision relate to anti-apartheid legislation, a bankrupt monopoly and different exceptional business cases?

The attempt was to frame research projects along the SDGs instead of disciplines. For example: How can an “affordable, reliable, sustainable and modern energy system for all” (SDG 7) be achieved in South Africa? First, this is a macro- and energy-economic question: We have the (growing) demand of an emerging economy, the monopolistic supplier Eskom, the state that regulates prices and owns Eskom at the same time, coal and sun as abundant resources and outdated infrastructure that requires a huge amount of technological investments. Building new coal plants is much more expensive than solar technology and in fact outside the budget constraint of Eskom who is close to being bankrupt due to price regulations below marginal production costs. Here Political Economy comes into play: One of the main objectives of the post-apartheid government is to serve the underprivileged townships and build an integrative economy. Given this, a large fraction of society that is still very unequal doesn’t have to pay for electricity. Then again, Eskom is constrained in the choice of new technology because of the “Black Economic Empowerment” legislation, which limits purchasing activities to suppliers with a minimum fraction of black employees and excludes appropriate technology suppliers from abroad, according to Eskom. Apart from meetings with the Head of Communications and PR from Eskom and a political analyst who explained the development of the energy infrastructure in South Africa and the political landscape, GIBS researchers organized interviews with representatives from the Independent Power Producers Association (IPP). Those are mostly solar energy producers that are guaranteed a niche in the energy market production-wise, but are not allowed to sell electricity to consumers but only to Eskom, the grid provider. Both Eskom and the IPPs are dissatisfied with this situation, and large industrial companies circumvent this energy market with poor reliability and performance by building own solar plants to meet their energy needs, which assures their individual demand but not the societal one. The big South African banks, then again, want to support sustainable development and cut back capital supply for the fossil giant Eskom, which restricts the development of the energy system overall.

So what are the lessons for PRME institutions here? How can research help to solve such sustainability dilemmas? Economists are familiar with the welfare losses in a monopoly setting, but how does a model look like in case of a state-owned monopoly with too low prices? If taking into account environmental and social consequences? Many sustainability challenges are related to externalities, public goods and free riding, which indicates that governments and institutions have to be central parts in analyses. But how can effective institutions be unveiled, compared and designed? And what role can entrepreneurs like the IPPs and industrial partnerships play in regulated markets?

From a qualitative research perspective, questions like sample choice, data quality and comparison are crucial: Which actors are important? Can cross-country studies be beneficial to evaluate what measures could work in a particular case? We all left the meeting with various ideas for transdisciplinary research projects and networking between different cultures and research foci – yet being aware that this requires resources in terms of money and most of all time. In a nutshell, being a PRME champion means first and foremost personal commitment of professors and deans to drive change.

Promises in South Africa: Mainstreaming the SDGs at home (photo: PRME)

Governance and motivation in academia

Coming back to the problem (or rather dilemma) number 2 from the beginning – can unsustainable means be justified in order to achieve more sustainability ends? Stepping back and questioning routines is crucial for sustainable transformations, also for academics. At the meeting, professors became students again – We have to ask what others can teach us instead of only employing established concepts. Getting to know people face-to-face and experiencing other cultures and practices first hand is probably the best way to reflect and come about new directions for development. But we have to find ways to keep this attitude in our own city and our everyday working life. Traveling to other continents is a precious opportunity but has to be seen as a luxury rather than a routine itself.
At the end of our meeting, a young scholar from GIBS introduced us to a tradition shared by many African cultures: sharing a cola brew in a particular container called “calabash” as a symbol for energy and life. Instead of putting a drink, we put pieces of paper in it – with pledges how to implement ideas and thoughts from South Africa at our home universities. While we talk so much about sustainable development, responsible management and change, we have to start with ourselves – as intelligent and intellectual persons, we should try to alter the things that we know that are contraindicated. And to find means to achieve better institutions. With regard to the PRME network, this means, first of all, effective organization of communication and remote teamwork for collective projects. And more generally, to be persistent and attentive to the multiple facets of challenges and original ways of solving them.

Blogpost by: Johanna Klatt, research and project manager at Misum. She is particularly interested in the transdisciplinary aspects of sustainable development and transitions, and sees the PRME initiative as an opportunity for business schools to open up and go beyond “business-as-usual”.

We need to change the system! Between political activism and individual inactivity

Global Climate Strikes for Future in Stockholm, May 24, 2019 (photo: JK)

On May 24, thousands of people around the world (summing up to more than one million) went on the “Global Strike for Future” again. Striking is relatively simple, and seen as a basic right in developed countries (in contrast to many countries where freedom is far more restricted). However, Greta Thunberg gained enormous publicity with saying “No” to School, and thereby “business as usual” for young people. 

“If the emissions have to stop, then we must stop the emissions. To me that is black or white. There are no gray areas when it comes to survival. Either we go on as a civilization or we don’t. We have to change! […]Why should I be studying for if future that soon will be no more? When no one is doing anything whatsoever to save that future? And what is the point of learning facts in the school system, when the most important facts, given by the finest science of that same school system, clearly means nothing to our politicians and our society?”

(quoted from her speech at TEDX Stockholm)

This rationale could not be more justified, with regard to the urgency of cutting emissions drastically and the high ambitions politicians expressed in the Paris Agreement – according to the IPCC (2018), we have to cut emissions by 50% until 2030 and become carbon-neutral by 2050 if we want to have only a 50 % change to stay below 1,5 degrees of global warming. 

Despite this, Greta and her peers are not supported by many but in fact confronted with a lot of hostility from adult people, saying that they are imprudent and lazy. It is exactly these two allegations that are repeated mantra-like when it comes to initiatives that challenge our current societal system and routines, let it be anti-capitalistic communities, redistributors, degrowth proponents, or vegans. While it is kind of obvious that we don’t like to be confronted with the moral drawbacks of our behavior, and react according to “offence is the best defense”, it is a bit disturbing how easily “not doing” is perceived as something negative per se.

Given the fact that the “persons in charge”, most prominently governments, CEOs and executive managers, are not facing the immense environmental and social problems created by a globalized growth economy, the potentially most auspicious thing we can do as individuals is saying “no thank you”. Like striking, this is a pretty simple guideline actually – especially with respect to the complexity around our every-day decision-making and the common concerns of intransparency, lack of data, and greenwashing. 

Don’t buy this product from this international chain – the longer the supply chain, the more emissions and less transparency you have, generally speaking (although there are exceptions of course, but you have to do quite some efforts to find them out)

Don’t be tourist as soon as there is a “good offer” (it’s the same mental infrastructures that lead to too much flying – less travel, but with more time and quality)

Don’t expose yourself to the elures of social media and customized advertisement of exciting experiences all the time – People suffer from stress and burn-out, and there is a growing demand for guidebooks, retreats, yoga, and a plethora of services to get out of the hamster wheel, but just stop doing something all the time is barely considered as an option (cf. e. g. Dowthwaite 2019, Rosa 2013, Tan 2012). 

Our inherent drive to “do, have, achieve”, i.e. to grow and become more, illustrates why it is so hard to change the system: because we are all parts of it and its logic. And this logic leads to the overuse of “natural resources” as well as “human resources” – terms that reflect that it is not the existence of nature and human beings that is valued, but how they are used. But to which end? If we think twice: How much percent of all these actions are not only bad for nature and workers living far away, but actually also for our own mood, our own health and your social relations?

And what makes us do all those things, still? “‘How do we solve that?’ you ask us – the schoolchildren striking for the climate. […] Then we start talking about circular economy and rewilding nature and the need for a just transition. Then you don’t understand what we are talking about. […] You don’t listen to the science because you are only interested in solutions that will enable you to carry on like before. Like now. And those answers don’t exist any more.” (Greta Thunbergs speech at the British Parliament)

The true obstacle is how the system took over our own behavior and thoughts, but this is not a natural law. “The point is […] that what is possible in practice could be impossible to implement because of the characteristics of the existing ideology” (Jakobsen 2019, p.6). What would happen if each individual gradually stops doing such harmful actions? Starting once with a “no thank you, I don’t need this right now”, and wait at least until tomorrow. Probably by then we have not starved, got fired, or lost our (social) life. And then we can think about the same thing again. It would be a process with many, many steps (or stops) in everyone’s everyday life. But if there are many, things gain legitimacy, and the system can eventually change. 30 years ago, the communist system of the Soviet Union collapsed, after more and more people went on strike. The stakes for them to resist were obviously higher than for us.

Photo: JK

Blogpost by Johanna Klatt, MSc. Environmental and Resource Economics and project manager at Misum

References and further reading: 

https://www.fridaysforfuture.org/greta-speeches#greta_fullspeech_feb21_2019

https://science.sciencemag.org/content/364/6436/139.2.full?fbclid=IwAR15P4iAG0rOtNmSwFcyYLSarh4VcKuGfBM-A6wWvWAcXrRWJHEZ9H2RYVk

https://theconversation.com/striving-for-happiness-could-be-making-you-unhappy-heres-how-to-find-your-own-path-115104

IPCC (2018). Summary for policymakers: Global warming of 1.5 °C—An IPCC Special Report on the impacts of global warming of 1.5 °C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty,”

[https://www.ipcc.ch/site/assets/uploads/sites/2/2019/05/SR15_SPM_version_report_LR.pdf]

Jakobsen, O. D. (2019). Anarchism and Ecological Economics. A Transformative Approach to a Sustainable Future. London: Routledge

Rosa, H. (2013). Social Acceleration: A New Theory of Modernity. New York: Columbia University Press.

Tan, C. M. (2012). Search Inside Yourself: The Unexpected Path to Achieving Success, Happiness (and World Peace). New York: HarperCollins. 

The uneven geography of crowdfunding success

In recent years, crowdfunding has emerged as an increasingly common source of innovation finance for entrepreneurs that has allowed them to forgo traditional financiers like venture capitalists (Mollick 2014). Instead, entrepreneurs can engage consumers directly for financial support and consumers have thus become increasingly common enablers of product and service innovation in their own right (Belleflamme et al. 2014). The potential to engage consumers directly for innovation finance has subsequently been hailed to be changing “how, why, and which ideas are brought into existence” (Gerber & Hui 2013, p.1). For example, by reducing the geographical constraints of traditional funding (Agrawal et al. 2015)in addition to expanding access to entrepreneurial finance to a greater range of individuals and teams (Lehner & Nicholls 2014; Sorenson et al. 2016). It perhaps not surprising then that, an increasing number of people are excited by crowdfunding and especially its potential to democratize access to finance, especially as it breaks with the dominance of venture capitalist who typically select entrepreneurs who mirror themselves “in terms of their educational, social, and professional characteristics and end up concentrated in a small number of regions.” (Sorenson et al. 2016, p.1526). But the question is: Does crowdfunding break the geographic constraints observed within other funding domains or is it similarly discriminatory?

Does crowdfunding break with common discriminations in access to finance?

In seeking to answer this question, my colleagues and I sought to map success rates for 134,098 campaigns launched in the USA on the IndieGoGoplatform between 2009 and 2015 in order to observe whether spatial capital effects your chances of success (full reference see below). Spatial capital referring to your ability to draw capital from other social spaces due to geographic context. Our hypothesis was that if crowdfunding does overcome spatial inequalities seen with other forms of innovation finance perhaps this may be because it allows people to monetize resources ignored by for example traditional VC markets or change what can function as capital. These alternative form of resources or capital building on the Bourdieu’s model of capital. 

Figure 1.Predicted probabilities that campaigns are fully funded

As the figure above shows, two things are apparent from the data. First, only a few teams with high field-specific cultural, social, and economic capital have reasonable chances of success (only 10% of IndieGoGo campaigns are fully funded). Second, campaigns’ location shapes their fortunes. Areas that are more affluent, have higher levels of local association and cooperation, and have a younger population have a particular advantage. For our modeled campaigns, for example, 47% of pledged funds accrued to the top 5 commuting zones, Los Angeles (17.9%), New York City (17.5%), San Francisco (4.9%), Boston (3.6%), and Austin, Texas (3.1%). While these top cities differ from VC investments it is apparent spatial inequalities place significant limits on who can benefit from crowdfunding campaigns, suggesting crowdfunding may not democratize access to finance, as optimists hope.

Success at the crowdfunding platform is determined by “sociospatial conditions”

We found that while these observations are in part driven by agglomeration pressures this is not full story as simply being in the right location does not on its own substantially boost one’s odds of success. Rather, the right kind of capital – where the “right” capital is determined by local sociospatial conditions – interacts with agglomeration in generating opportunities. For example, success appears to become less likely in affluent areas as the non-white share of the population increases, but in diverse areas we see the opposite relationship, and a greater concentration of projects of the same type appears to support success in rural areas but leads to overcrowding and competition in youthful ones. Hence, not only does location shape the likelihood of success, but also when and which forms of capital are useful in that context.

Our findings show that even in the platform economy, success is often dependent on physical location, despite the very low transaction costs offered by the internet. Whilethis does not necessarily mean crowdfunding cannot be inclusive, it certainly means that it cannot be assumed to be so.

Blogpost bKristian Roed Nielsen (@RoedNielsen), Visiting Researcher at Misum and Post-Doc Researcher at Copenhagen Business School

Full article: Caleb Gallemore; Kristian Roed Nielsen; Kristjan Jespersen. 2019.The Uneven Geography of Crowdfunding Success: Spatial Capital on Indiegogo. Environment and Planning A (In press). p. 1 – 18. https://doi.org/10.1177/0308518X19843925

Further references:

Agrawal, A., Catalini, C. & Goldfarb, A., 2015. Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions. Journal of Economics & Management Strategy, 24(2), pp.253–274. Available at: http://dx.doi.org/10.1111/jems.12093.

Belleflamme, P., Lambert, T. & Schwienbacher, A., 2014. Crowdfunding: Tapping the right crowd. Journal of Business Venturing, 29(5), pp.585–609. Available at: http://www.sciencedirect.com/science/article/pii/S0883902613000694.

Gerber, E.M. & Hui, J., 2013. Crowdfunding : Motivations and Deterrents for Participation. ACM Transactions on Computer-Human Interaction, 20(6), pp.34–32.

Lehner, O.M. & Nicholls, A., 2014. Social finance and crowdfunding for social enterprises: A public-private case study providing legitimacy and leverage. Venture Capital, 16(3), pp.271–286. Available at: 10.1080/13691066.2014.925305.

Mollick, E., 2014. The dynamics of crowdfunding: An exploratory study. Journal of Business Venturing, 29(1), pp.1–16. Available at: http://www.sciencedirect.com/science/article/pii/S088390261300058X.

Sorenson, O. et al., 2016. Expand innovation finance via crowdfunding. Science, 354(6319), pp.1526 LP – 1528. Available at: http://science.sciencemag.org/content/354/6319/1526.abstract.

Breaking rules and the common good – Unethical behavior, good citizenship and organizational success

Why does it seem like others find it so difficult to do the right thing? As armchair generals, our vison is untrammeled. We plainly understand that we should forgo selfish short-run profits, instead selecting a more sustainable option that provides a greater benefit to everyone in the long run. As we clearly are not idiots (at least most of the time), then why does it seem like our colleagues, neighbors, and friends often are? The widespread negative implications of bad behavior are so costly that, as part of their goal to promote just, peaceful, and inclusive societies (SDG 16), the UN has focused on tackling the various forms of corruption that cost the economies of developing world alone roughly $1.26 trillion (USD). One explanation for this crippling amount of corruption is that others are simply greedy, selfish, or even psychopathic, focusing on their own gains despite the costs to others. However, a less considered, but potentially more fruitful explanation is simply this: People are loyal.

Individual ethics versus group dynamics

The news seems full of stories of corruption where bankers manipulate markets, create fictional clients to permit unauthorized trading, or launder money. And while clearly there are massive financial incentives that often blind employees from doing the right thing, it may be that reason certain individual consistently fail to do the right thing because they are simply being loyal to their colleagues. For instance, in 2012 when the Swiss bank UBS agreed to settle an investigation into the unauthorized trades of trader Kweku Adoboli who lost the bank roughly $2.3 billon, one might think that such transgressions were simply the result of one bad apple. However, a closer look at the internal culture at UBS suggests that Adoboli was not vilified. In fact, colleagues referred to Aboboli as a “legend.” Because Aboboli was initially breaking the rules in ways that helped others, ultimately contributing to the common good (at least at UBS), he was championed: rewarded both financially and socially for his unethical contributions to the group.

In my research, I explore how groups socialize this unethical loyalty, ultimately rewarding deviants for their actions, even if they violate commonly held ethical principles or existing laws. In a working paper “Rewarding Deviants” with Philip Yang, at University of Tubingen, and Celia Moore, at Bocconi University, we find that individuals who break the rules but contribute to groups receive greater rewards than those who behave ethically. We argue that this is the case because unethical behavior may ultimately serve as a signal to others of one’s underlying dedication and value to the group. For instance, on sports teams, we find that even after controlling for performance, that deviance predicts higher salaries and more playing time, suggesting that teams do in fact reward players for breaking the rules. In fact, it may be precisely because this sort of behavior is a costly (i.e., leading to penalties, fines) that team members take it as signal of one’s value to the group. In a controlled experiment, we replicate this preference for deviants, finding in a die rolling game that players who break the rules by rolling statistically improbable scores – such as fifteen “5s” in a row – are more likely to be selected as a future partner in a subsequent game when compared to honest players.

Public good dilemma extended: from individual to group rationality

Why do people prefer deviants? It turns out that they see them as better contributors, not because they are being honest, but because they demonstrate greater loyalty through their illegitimate actions, indicating a willingness to do just about anything to support their group members. Our findings help explain why whistleblowers, those who value honesty above loyalty to the group, are punished by the groups they inhabit; or the fact that police forces have been shown to enforce a “blue wall of silence” where they will beat suspects or perjure themselves in order to support their fellow officers; even though these are the very people who are entrusted with upholding the laws.

What is perhaps more worrying is that this preference to reward deviants may contribute to emotional reactions that hasten the adoption of bad behaviors and corrupt cultures. In another working paper “Unethical Gratitude,” I ironically find that feelings of gratitude, emotions we usually equate with ethical behaviors, may contribute to the development of cultures of corruption in organizations. In a diverse sample of supervisors across twenty-three different countries and nineteen different industries, I find that supervisors not only feel gratitude for the unethical behavior of subordinates, but that these feelings of gratitude motivate positive reciprocity, where supervisors believe that their unethical employees should advance in their careers.  

Though we may believe (or hope) that deviants are punished or even ostracized from groups for engaging in various forms of corruption (rule breaking, bribery, lying), the findings from my research suggest that this is not always the case. Instead, deviants often receive greater rewards from their peers than do honest group members. It turns out why it may be so hard to do the right thing is because close others (e.g., the teams we play on, groups we compete with, the superiors we try to impress) may not penalize us if we break the rules. Instead, those around us want us to be loyal contributors, even if that means we might engage various forms of corruption as a result.    

Text by: Wiley Wakeman, Assistant Professor at the Department of Management and Organization at SSE, with a strong research interest on how deviants, whistleblowers, and rule breakers advance their careers and the organizations they are part of.

Related Reading:

Chin, G. J., & Wells, S. C. (1997). The blue wall of silence as evidence of bias and motive to lie. A new approach to police perjury. U. Pitt. L. Rev., 59, 233-

Dworkin, T. M., & Baucus, M. S. (1998). Internal vs. external whistleblowers: A comparison of whistleblowering processes. Journal of Business Ethics, 17, 1281-1298.

Spence, M. (2002) Signaling in retrospect and the informational structure of markets. The American Economic Review, 92, 434-459.

Wakeman, S. W. (2018). Unethical gratitude? How gratitude helps give rise to unethical cultures in organizations. Nominated for best paper European Group of Organizational Studies, Tallinn, Estonia.

Wakeman, S. W., & Moore. C. (2014). Kweku Adoboli at UBS. London Business School, CS-14-001.

Wakeman, S. W., Yang, P., & Moore, C. (2018). Rewarding deviants: Unethical behavior as a signal of one’s value. Academy of Management Best Paper Proceedings. 

Waytz, A., Dungan, J. & Young, L. (2013). The whistleblower’s dilemma and the fairness-loyalty tradeoff. Journal of Experimental Social Psychology, 49, 1027-1033

Digital Transformation & Sustainability

Understanding digitization as the conversion of analog information in any form into digital form, this process is accelerating as rapidly growing use of digital technologies in business and society. As a result, we see emergence of digital transformation processes in many private firms, public organizations and industries, i.e. a profound and accelerating transformation of activities, processes, competencies and business models. Digital transformation is a megatrend as along with it, we have the widespread concern for sustainable development. In my research together with Lars-Gunnar Mattsson at Misum, we focus on how digital transformation of public services can promote sustainable development. Previous studies have taken the perspective of private business firms that are involved in service innovation processes, focusing upon their business modelling challenges. 

Innovation in public services through digitalization and networks

In two recent book chapters on the strategic challenges that companies and organizations in all industries and sectors of society are meeting due to digitalization (Andersson and Rosenqvist 2018; Andersson and Mattsson 2018), we argue how both companies and public organizations currently face challenging digital transformation processes. Business actors involved in networks for production, distribution, consumption and use of products and services find that digital transformation provides both opportunities and challenges. Digital transformation that enables public service innovation affect network structures and processes. To develop and implement viable business models becomes a major issue, that is vividly discussed in business fora. For the public actor, this corresponds to issues related to development and implementation of models for effective and efficient service provision. 

The project builds on the assumption that public service innovations aimed at promoting sustainable development should be especially important for public actors for whom providing public services is the major task. The World Economic Forum, for instance, argues that opportunities to develop and implement service innovations based on digital transformation should be given a high priority (WEF, 2016). Public service innovation, enabled by digital transformation is an important phenomenon subject to development and implementation of both private business models and of public norms and practices. We investigate the nature of these processes, with the help of cases on digital transformation of public services: for example: city lighting, public transportation, healthcare, and education. The cases all describe early stages of applications of digital transformation and with consequences for societal sustainability.

Image: Pixabay

The importance of new business models and public private partnerships

Results from the case studies of digital transformation in private-public contexts and sustainability have indicated that sustainable development criteria can involve a wide perspective on what types of values are involved compared with a more narrow traditional business model analysis. Of the three main pillars of sustainable development – economic growth, environmental protection, and social equality – the digital transformation studies have addressed mainly the last two. Projects with a focus on the role of digital technologies in eco-city development (eg..Smart Cities) including LED street lights and energy efficient public transportation include publicly formulated environmental sustainability goals. A project which focuses on the implementation of digital technologies in education embraces social sustainability goals associated with social equality as a central driver.  

To balance and coordinate the business and the societal values associated with public service innovations emerge as one common business modelling challenge for private firms. An implication of this is that public actors need to rethink policies in order to participate in the co-creation of service innovations associated with digital transformation: for example, this relates to procurement procedures, service operations, pricing and cost accounting models, infrastructure, and principles for public/private collaboration. The research cases point to the general attribute of public service innovations that resources of several cooperating actors, private and public, that have to find their roles, positions and relationships.

Text by: Professor Per Andersson, Director of the Center for Digital Innovation and Transformation at SSE, includes sustainability as a major aspect of his research. He focuses on how digital transformation supports public service innovation for sustainable development.

Further reading:

Andersson, P. and L-G. Mattsson, (2015),”Service innovations enabled by the “internet of things””, IMP Journal, Vol. 9 Iss 1 pp. 85 – 106 (Best Paper Award 2015)

Andersson, P. & Mattsson, L-G. (2016), “Digitalisation and Service Innovation: The Intermediating Role of Platforms”, chapter 8, in: P. Thilenius et al. (eds.), Extending the Business Network Approach, Palgrave Macmillanpp. 141-158

Andersson, P., & Mattsson, L-G. (2018). Digital Transformation Supporting Public Service Innovation for Sustainable development – Business modelling interacting with “public service provision modelling”. Paper presented at the IMP Annual Conference, Marseille, September 2018

Andersson, P., & Rosenqvist, C. (2018). Strategic Challenges of Digital Innovation and Transformation, (Chapter 1) in: Andersson, P. et al (eds), Managing Digital Transformation The Stockholm School of Economics Institute for Research (SIR), Stockholm School of Economics: Stockholm.

Andersson, P., & Mattsson, L-G. (2018). Digital Transformation Supporting Public Service Innovation: Business Model Challenges and Sustainable Development Opportunities, (Chapter 11) in: Andersson, P. et al (eds), Managing Digital Transformation The Stockholm School of Economics Institute for Research (SIR), Stockholm School of Economics: Stockholm.

Homo oeconomicus revisited: A world where humans have non-selfish preferences

In order to achieve a sustainable economy, policy-makers have many instruments at their disposal. They can impose taxes on consumption and/or production, propose regulations and laws, and they can inform consumers and producers about environmental consequences of their behaviors. Economics research is often used to design such polices.

What are “natural” human preferences?

Evidently, the predictive power of economic models depends on the assumptions made regarding what drives human behavior. Economics traditionally takes individuals’ motivations – their preferences – as given, and most of the time those preferences are assumed to express pure material self-interest, or Homo oeconomicus. But if preferences are inherited from past generations, what are their evolutionary foundations? More specifically, what preferences have survival value in a given society. Should we expect pure self-interest, altruism, inequity aversion, spite, some form of moral motivation, or something else? 

The answer to this question is of great importance for environmental economics and sustainability. Should one use Homo oeconomicus as a representation of human motivation when analyzing environmental externalities, the effects of taxation and/or regulation? Or should one assume that people, at least to some extent, care about the environmental externalities of their actions? This question is at the heart of the literature on preference evolution, a literature to which professors Jörgen Weibull, at the economics department of the Stockholm School of Economics, together with professor Ingela Alger, at the Toulouse School of Economics and the Institute for Advanced Study in Toulouse, have contributed in recent years. They have shown that evolution favors a class of social/moral preferences, the carriers of which they call Homo moralis. 

An alternative economic model

More precisely, they have developed a theoretical model framework for analysis of the evolutionary foundations of human preference formation in strategic interactions between individuals. In this framework, individuals are matched to form groups of a given finite size and to play a symmetric game with material payoffs. Each individual is endowed with preferences over how to act in the interaction at hand. Each individual’s preferences are his or her private information. A preference is evolutionarily stable if individuals endowed with that preference, the residents, fare better in material terms than rare mutants, individual endowed with other preferences, if the latter would suddenly appear in the population. Material outcomes are evaluated in the associated equilibrium states, in which all individuals act according to their own preferences. 

A key feature of this model is that it allows the matching into groups to be statistically assortative in the sense that rare mutants may be more likely than residents to meet other rare mutants. Such assortativity arises if (a) individuals tend to interact with individuals in their geographic, cultural, linguistic or socioeconomic vicinity, and (b) mutations tend to first spread locally. 

This research program has resulted in a series of publications, both in economics and in biology. These studies are centered around two main results. First, evolution turns out to favor a particular type of social or moral preferences, preferences that attach some weight to the individual’s own material payoff, but also to what material payoff she would obtain if, hypothetically, if others would act like she. The latter component can be interpreted as an expression of Immanuel Kant’s categorical imperative, namely, to “act only according to that maxim whereby you can, at the same time, will that it should become a universal law” (Kant, 1785).

The second main result is that all preferences that induce behaviors distinct from those of Homo moralis are evolutionarily unstable, in the sense that there exist mutant preferences that, if entering in small population shares, will materially outperform the residents. 

Homo oeconomicus, homo moralis and the public goods dilemma

Interestingly, Homo moralis preferences are new to the economics discipline. Indeed, while a variety of preferences, deviating from those of Homo oeconomicus, have been proposed and analyzed in the economics literature over the past 25 years, this particular class of preferences has not appeared in the economics literature before. 

The implications for economic analysis, if Homo oeconomicus is replaced by Homo moralis, are quite striking for some interactions. In particular, in public goods provision, and in situations of the “tragedy of the commons” type, as well as in environmental economics more generally, Homo moralis may, unlike Homo oeconomicus, take actions that, although costly in terms of own material payoffs, provide more public goods and are less harmful to the environment. Importantly, they may do this even if the effects of the individual’s actions are negligible. The reason is that the moral component is deontological in nature; it triggers the individual to “do the right thing”, to act in a way that it would like others to do in the given situation. Because of the deontological nature of this component, information about environmental consequences may affect the behavior of Homo moralis (but not Homo oeconomicus), even in situations when individual behavior has negligible effects on the environment. 

Text by Jörgen Weibull, Professor at the Department of Economics at SSE, & Ingela Alger, Professor at the Toulouse School of Economics

Professors Alger and Weibull are currently carrying out laboratory experiments with human subjects to shed light on human motivation, and to investigate whether traces of Homo moralis can be found in the data. They also carry out interdisciplinary research with theoretical biologists in order to integrate their methodologies. 

More about this research project can be found on their personal web sites:

Ingela Alger: https://www.tse-fr.eu/people/ingela-alger/ 

Jörgen Weibull: https://sites.google.com/site/joergenweibull/