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Ethical standards and cultural assimilation in financial services

Alan Morrison and John Thanassoulis ()

No 12060, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a firm with ethical employees who can adopt a profitable working practice that may harm their customers. Their response to this dilemma reflects their compensation contract as well as their ethical willpower. We identify optimal compensation contracts under utilitarian and deontological (duty-based) ethical standards. With utilitarian employees, and irrespective of employee willpower, a profit maximising firm with sophisticated customers generates the ethically best outcome. Organizational culture emerges as an equilibrium phenomenon. If the firm is a partnership, if sales commissions are hidden, or if customers are naive the firm may use bonuses to create a culture of malpractice.

Keywords: behavioural norms; bonuses; Culture; Ethics (search for similar items in EconPapers)
JEL-codes: D03 G02 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-dcm
Date: 2017-05
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