‘The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through and captures the essence of evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA.’—Gordon Gekko, Wall Street (1987)
This is not the opening line of an incredibly unfunny joke.* Rather, this is an economist’s story of how Abraham Lincoln indirectly forced Lance Armstrong to come clean about cheating. It’s also the story of why detecting fraud by Wall Street bankers may prove more difficult.Economists study incentives. We know that if the price of rice goes up, the incentive to produce and supply rice increases. The same is true in the market for private information about fraud. If whistle-blowing behaviour is rewarded, the incentive to supply private information about dishonest or illegal behaviour also increases.