How do ethics and the free market interact? As the authors of a new paper on the topic point out, the answer is often complicated. In the past, Western economies had vigorous markets for things we now consider entirely unethical, like slaves and Papal forgiveness for sins. Ending those practices took long and bloody struggles. But was this because the market simply reflects the ethics of the day, or does engaging in a market alter people's perception of what's ethical?

To find out, the authors of the paper set up a market for an item that is ethically controversial: the lives of lab animals. They found that, for most people, keeping a mouse alive, even at someone else's cost, is only worth a limited amount of money. But that amount goes down dramatically once market-based buying and selling is involved.

The research was done at the University of Bonn, which appears to have a biology department that includes researchers who study mouse genetics. As Mendel told us, genes are inherited independently. So as these researchers are breeding mice to get a specific combination of genes, they'll inevitably get mice that have the wrong combination. Since proper mouse care is expensive and lab mice typically live a couple of years, it's standard procedure to euthanize these unneeded mice.

Putting a price on mice

The study's authors, Armin Falk and Nora Szech, obtained enough money to let these mice live out their natural lives in the same facility. Then, they attempted to create a market in which the lives of the mice were at stake.

Rather than creating a market that set a price on a mouse's life, however, the mice were largely treated as externalities. Externalities are consequences of economic activity that don't directly affect either the buyer or seller, and aren't priced in to any transactions—examples might include the health consequences of sweatshop working conditions or burning coal to produce electricity. In this case, the mice themselves became an externality. If the participants could broker a deal involving cash, a mouse would be killed. If the deal didn't go through, the mouse was kept until it died a natural death.

So, participants were given a picture of a typical research mouse then had a video of the approved euthanasia procedure shown to them. Next, they were set loose to negotiate a deal.

To establish a baseline for how much people valued lab mice, the authors offered a simple choice: would you accept €10 (roughly $13) if it meant that the mouse would die? About 45 percent of the participants were willing to go ahead with that deal. If participants were asked to find a price at which they'd be willing to allow the mouse to be killed, about 43 percent accepted a price that was €10 or under. So, this gave the researchers some sense of how much people value saving a mouse's life.

That is, until they started trading. In a simple market, a buyer was given €20 ($26), and asked to negotiate an acceptable exchange with a seller. If the two couldn't agree on a fair split, neither of them got any money, but the mouse got to live. In a multilateral market, the researchers put seven buyers together with nine sellers. The researchers gave them all constant updates of the average current price being negotiated and when deals went through.

Suddenly, the mice weren't worth as much. In the paired buyer/seller situation, 73 percent of the pairs reached a deal worth less than €10 for the seller. And, in the multilateral setup, 76 percent of the mice ended up dead for a price less than €10. To reach an equivalent percent of people willing to see a mouse die in the "choose your price" control, it would have taken a value of about €50 ($65). In contrast, the average price of a deal in the multilateral situation as only about €5 ($6.50).

In the multilateral market, the price of a deal actually went down over the course of negotiations, as sellers became more and more interested in coming away with any money. Bizarrely, in a control experiment involving a gift certificate, the price stayed constant throughout the negotiations.

A market for ethics

How can a marketplace have such a profound effect on people's decisions? The authors note that there are a number of factors likely at play. To begin with, it takes two people to agree to a deal that ends up with a dead mouse, and that may be viewed as distributing the responsibility to an extent. The mere existence of a market structure also helps normalize the decision in people's minds, suggesting that the situation is socially acceptable. Finally, the structure of a market displaces people's reasoning, shifting it from the life or death of a mouse to a competition over the particulars of a deal and awareness of the deals that others are cutting.

The researchers argue that parallels to real-world behavior are pretty obvious. People may be against sweatshop-like working conditions in general, but very few people are willing to take time out from hunting for a good deal to research a company's manufacturing supply chain.

Before you dismiss the authors as a bunch of anti-capitalist agitators, they're well aware that other forms of resource distribution have fostered some fantastically unethical behavior. Or, as they put it in more academic terms, "Other organizational forms of allocation and price determination such as in totalitarian systems or command societies do not generically place higher value on moral outcomes."

What they argue instead is that we need to recognize that markets in general won't always give their participants the sorts of outcomes they would have preferred. And, if the difference between our hopes and the actual outcomes becomes too large, then it might be time to consider some form of market intervention.

Science, 2013. DOI: 10.1126/science.1231566 (About DOIs).