Latin American Capital Markets

422 OSVALDO R. AGATIELLOnumber of professional standards, such as codes of conduct and model rules.Trust inthis context may be defined as the rational expectation of ethically justifiable behavior;that is, morally correct decisions based on established ethical principles of analysisand action. Trust is both result and constitutive element of decisions and actionsthat simultaneously take into account self-interest and the interest of others. 6 Controlsand reviews, although necessary, are expensive substitutes for trust, and it is theircost that usually makes them limited in scope and depth.That is why it is customaryin business to speak of "good-faith efforts" to comply with agreements, "full and fairdisclosure" when dealing with information, or a "general willingness" not to take undueadvantage of counterparts when conditions change, thus acknowledging that no pieceof legislation, contractual clause, enforcement practice, or human intervention will beinfallibly problem-free (Hosmer 1997)7In addition to rules and regulations on disclosure, adequate procedures, accountability,and transparency, building up confidence requires the agency of trustworthypeople.This means that professional actors in the market not only should becompetent in their respective capacities but also should be aware of the trust in theiractivities and functions and the moral commitment to live up to such trust. Individuals,particularly professionals, frequently encounter discretionary space in their activitiesas, by definition, no rule can predict all outcomes. For example, the accountant,the attorney, and the market analyst regularly have to make assumptions and representationsthat often cannot be verified by the client at the time of making an investmentdecision. Or, more seriously, they may have to take actions that cannot wait forthe approval of their clients.This leads to a new level of analysis, beyond the consumption of confidenceand even the individual production of confidence. If confidence were conceived as apublic good in economic terms—that is, as a good from which nobody could be excludedand that could be consumed by any economic agent without reducing or impairingits consumption by others—then the production of confidence would requirethe collective effort of all participants in the system (Enderle 2000, 2002). Individualefforts cannot produce public goods because even the intrinsic and instrumental benefitsof individual trustworthiness are of no use if there is no one to trust or to be6 For instance, corruption being "the violation of established rules for personal gain and profit," Sen (1999, p. 175) purports,"that it cannot be eradicated by inducing people to be more self-interested."This is consistent with the ethicallycomprehensive view of reaching a reflexive equilibrium between self-interest and the interest of others, alsocalled the l-We paradigm (Etzioni 1997).7 Some will argue that this is not the realm of ethics, but an expedient way to deal with legal lacunae. However; thisargument does not detract from the expectation of virtuous behavior For instance, Cicero (1913, vol. Ill, pp. xlii-xiv)reminds us that "concealment consists in trying for your own profit to keep others from finding out something thatyou know, when it is for their interest to know it."Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub