Ethical Standards and Cultural Assimilation in Financial Services

48 Pages Posted: 21 Apr 2016 Last revised: 18 Jul 2016

Alan D. Morrison

University of Oxford - Said Business School; University of Oxford - Merton College

John E. Thanassoulis

University of Warwick - Warwick Business School; Oxford-Man Institute, University of Oxford; Nuffield College, University of Oxford

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Date Written: July 18, 2016

Abstract

We introduce ethical agents into an analysis of decision making in a profit-maximising firm. Agents can adopt a profitable new practice that may harm customers. Their decision reflects moral considerations, organisational culture, and compensation contracts. We analyse both utilitarian and deontological (duty-based) philosophical traditions. Cultural assimilation emerges as an equilibrium phenomenon. With sophisticated customers, the principal enables a culture that achieves the highest possible aggregate surplus and, under deontological ethics, both the principal and the customers would prefer to deal with less ethically committed agents. In contrast, the principal designs compensation to enable cultures that exploit naiive customers.

Keywords: Culture, ethics, behavioural norms, bonuses

JEL Classification: D03, G02, G20

Suggested Citation

Morrison, Alan D. and Thanassoulis, John E., Ethical Standards and Cultural Assimilation in Financial Services (July 18, 2016). Available at SSRN: https://ssrn.com/abstract=2766996

Alan Morrison (Contact Author)

University of Oxford - Said Business School ( email )

Department of Finance
Park End Street
Oxford OX1 1HP
United Kingdom
+44 18 6527 6343 (Phone)
+44 18 6527 6310 (Fax)

University of Oxford - Merton College

Merton Street
Oxford OX1 4JD
United Kingdom
+44 18 6527 6343 (Phone)

John E. Thanassoulis

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://https://sites.google.com/site/thanassoulis/

Oxford-Man Institute, University of Oxford ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

Nuffield College, University of Oxford ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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