Integrative Social Contracts Theory

Integrative Social Contracts Theory (ISCT) is fairly new to business ethics. Influenced heavily by the social contracts theories of political philosophers such as John Rawls, Thomas Donaldson’s and Thomas W. Dunfee’s ISCT integrates two distinct kinds of contracts. This first is a normative and hypothetical contract (macrosocial contract) among economic participants, a social contract similar to classical contractarian theories in philosophy and political economy. The second (microsocial contract) is an existing (extant) implicit contract that can occur among members of specific communities, including firms, departments within firms, informal subgroups within departments, national economic organizations, international economic organizations, professional associations, industries etc.[1] The first contract defines the normative ground rules for creating the second kind of contract.

ISCT creates a system which neither functions at such a high level of generality that it cannot adequately account for the functioning of cultural diversity – contra consequentialism and rule-based morality – nor lacks sufficient normative foundations to resolve difficult questions about who to include in the decision-making process and the degree to which those persons and groups ought to be involved – contra stakeholder theory. [2]

Key to understanding Integrative Social Contacts Theory are the concepts of bounded moral rationality and social contracts.

Bounded Moral Rationality
In the context of ISCT, Donaldson and Dunfee assert that moral rationality is bounded, meaning that moral agents, when applying moral theory to actual situations, confront confining limits.[3] This idea of boundedness is similar to Herbert Simon’s theory of bounded rationality.

Social Contracts
Many philosophers have touched on the methodology of social contracts including Plato, Hobbes, Rousseau, and Rawls. Donaldson’s and Dunfee’s theory is based on principles of economic morality.

Donaldson and Dunfee have identified four principles regarding economic morality to which contractors would agree the macrosocial contract.
  1. Local economic communities may specify ethical norms for their members through microsocial contracts.
  2. Norm-specifying micorsocial contracts must be grounded in informed consent to buttressed by a right of exit.
  3. In order to be obligartory, a microsocial contract norm must be compatible with hypernorms.
  4. In case of conflicts among norms satisfying Principles 1-3, priority must be established through the application of rules consistent with the spirit and letter of the macrosocial contract.

Principle 1
Contractors of the macrocontract will adopt a principle allowing the existence of community-specific microcontracts that serve to reduce moral uncertainty left by the bounded natural of moral rationality. Thus, the term microcontracts represents agreements or shared understanding about the moral norms relevant to specific economic interactions, termed moral free space. [4]

Principle 2
Given that macrosocial contract participants are considered rational, they will recognize that because people are permitted to be part of a microsocial contract that they are also able to exit that contract. Additionally, their consent to the contract is only binding when they are informed of their right to exit.[5]

Principle 3
Hypernorms, entail principles so fundamental to human existence that they serve as a guide in evaluating lower level moral norms. It is expected that they be reflected in a convergence of religious, philosophical, and cultural beliefs.[6] ISCT uses the convergence of the three as clues to identify hypernorms.

Principle 4
World-level rational contractors, recognizing both their strongly bounded rationality and the frequency of conflicts occurring among norms in various economic communities, require a way to arbitrate and resolve such conflict, priority rules are means for just that. However, sometimes conflicts are easily resolved because they oppose hypernorms. It is important to note that, the design of any priority rules for arbitrating such conflicts must reflect and be consistent with the terms of the macrosocial contract. [7]


[1] Donaldson, T., & Dunfee, T.W. (1994). Toward a unified conception of business ethics: integrative social contracts theory. The Academy of Management Review, 19(2), 252-284.
[2] Douglas, M. (2000). Integrative Social Contracts Theory: hype over hypernorms. Journal of Business Ethics, 26(2), 101-110.
[3] Donaldson, T., & Dunfee, T.W. (1994). Toward a unified conception of business ethics: integrative social contracts theory. The Academy of Management Review, 19(2), 252-284.
[4] Donaldson, T., & Dunfee, T.W. (1994). Toward a unified conception of business ethics: integrative social contracts theory. The Academy of Management Review, 19(2), 252-284.
[5] Donaldson, T., & Dunfee, T.W. (1994). Toward a unified conception of business ethics: integrative social contracts theory. The Academy of Management Review, 19(2), 252-284.
[6] Donaldson, T., & Dunfee, T.W. (1994). Toward a unified conception of business ethics: integrative social contracts theory. The Academy of Management Review, 19(2), 252-284.
[7] Donaldson, T., & Dunfee, T.W. (1994). Toward a unified conception of business ethics: integrative social contracts theory. The Academy of Management Review, 19(2), 252-284.