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Discussion Paper Details

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Title: Ethical standards and cultural assimilation in financial services

Author(s): Alan Morrison and John Thanassoulis

Publication Date: May 2017

Keyword(s): behavioural norms, bonuses, Culture and Ethics

Programme Area(s): Financial Economics and Industrial Organization

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.

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Bibliographic Reference

Morrison, A and Thanassoulis, J. 2017. 'Ethical standards and cultural assimilation in financial services'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12060