Moral Hazard & Legal (?) Corruption

Photo by Christopher Bill on Unsplash

Like me, you may have known Frank Hester only as the Tory donor who reportedly said Diane Abbot made him “want to hate all black women” (Link) and the equally embarrassing and unsurprising refusal of the PM to a) call these comments racists and b) return the £15.3m (!) of donations. Now we have a better idea about the context of these donations and the reason for the refusal to return them.

The Guardian reports that “Companies linked to Tory donors [were] given £8.4bn in public contracts since 2016“. So it certainly looks to me like Hester’s donations to the Conservatives were a form of “thank-you” (Could I get into legal trouble calling this a quid pro quo? – Not that anyone will read this, mind you). So the Tories’ refusal to return the donations are not (just) a sign of their moral bankrupcy, but also good economics.

In economics, moral hazard is situation where two parties agree to an exchange where one party pays the other to take a certain action. Then, after having received the payment, the second party may renege on the agreement if the first party cannot enforce it.

Let’s assume, hypothetically (lol!), that a political party agrees with a businessperson to funnel public money their way in return for donations. If there is a way that the party can later be pressured by public shaming into returning the donations after it becomes known that the donor is morally bankrupt, we have a moral hazard situation. For example, a donor may decide to intentionally leak a morally reprehensible statement they made earlier in order to have their cake and eat it, too (i.e. get the public money and get their donations returned), without technically reneging on their promise to donate. By stubbornly keeping the donations even though this was almost certainly damaging electorally, the Tories discouraged future bribers donors from going down that route.

So this was a case of terrible moral behaviour, but good economics.

Leave a Reply

Your email address will not be published. Required fields are marked *