Author(s)

Balbir S. Sihag

Professor Emeritus of Economics, University of Massachusetts, Lowell, MA, USA.

The main objectives of this paper are of two kinds: first one may be described as historical in the sense of correcting more than two thousand years of misinterpretations of the ideas of Confucius and Kautilya on establishing a moral order and the nature of its relationship to the legalistic approach; the second one is to highlight the relevance of moral order not only to create peace and harmony but also enhance the creation and sharing of knowledge and lowering of transaction costs. Since both creation and sharing of knowledge depend on genuine trust, which flourishes only in an ethical environment, and not in a “culture of suspicion”. It is indicated that their insights or pearls of wisdom are actually more relevant to today’s knowledge-based economies than they were to economies during their own times. They would have emphasized the warming of hearts to each other to solve the problem of global warming.

Bounded Rationality, Ethical Anchoring, Ethics-Based Approach, Government Failure, Knowledge-Based Economy, Legalistic Approach, Market Failure

Sihag, B. (2016) Confucius and Kautilya on Establishing Moral Order for Prevention of Government and Market Failures. Theoretical Economics Letters, 6, 20-27. doi: 10.4236/tel.2016.61003.