Moral(e) Drift? Economic Hardship and Tolerance Towards Dishonest Behaviour.

Abstract: There is a growing literature linking economic shocks to changes in values and social norms. Here, we investigate the possibility that the 2008 economic crisis, largely perceived as the consequences of wrongdoings in the financial sector and to have been poorly handled by governments, has generated a shift in ethical values. We are especially interested in stated tolerance towards dishonest behaviours (such as lying when selling second hand goods or inflating an insurance claim for example). Using data from a survey collected in 2010 (the EBRD LITS2 survey) in 35, mostly East European, countries, we report that respondents directly affected by the 2008 crisis, are systematically more accepting of dishonest behaviours. The effect is small and possibly only correlational, but it is robust to specification change, Oster’s test on unobservable bias and stronger when the dishonest behaviour described negatively impacts the state or businesses rather than citizens. This is consistent with the psychology literature, which suggests that individuals cheat more in contexts where they can self-justify doing so (e.g. here as a compensation for being negatively impacted by the crisis). Simultaneously, citizens who live in areas where the crisis has hit the hardest express a stronger rejection of dishonest behaviour. This effect is larger in magnitude, consistently found across all the behaviours investigated, and more credibly causal, as it is confirmed with a split-sample regression. Again, this is consistent with insights from the psychology literature indicating that respondents exposed to dishonest behaviours committed by individuals perceived as out-group members, will respond by rejecting dishonesty more strongly. Overall, our finding suggests a tightening of moral values after the 2008 crisis in the short-run.