Ethics and cultural assimilation in financial services
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 na¨ıve customers.
Alan Morrison is Professor of Law and Finance at Saïd Business School, University of Oxford, and a Fellow of Merton College. He is currently the head of the finance faculty at Saïd Business School. A former banker, his areas of expertise include bank regulation, investment banking, bank supervision and corporate governance. Alan is an Associate Member of the Oxford Man Institute of Quantitative Finance, and a Research Fellow at the Centre for Economic Policy Research, London. He has served as specialist advisor to the House of Lords Economic Affairs Committee and as a consultant to the World Bank, and has been a visiting scholar at the Federal Reserve Bank of New York.
Alan has served as Director of the MSc in Financial Economics and the Diploma in Financial Strategy, and is the creator and Director of the Oxford Finance Programme for Senior Executives. Alan holds a BA in Mathematics and a DPhil in Finance from the University of Oxford, and an MSc in Information Technology from Imperial College, London. Before taking his MSc and DPhil degrees, he worked in the City of London, firstly at Morgan Grenfell, and latterly at S.G. Warburg, where he was Director of Division. He is co-author, with William J. Wilhelm, Jr., of Investment Banking: Institutions, Politics, and Law. He publishes frequently in leading journals, including the American Economic Review, the Journal of Finance, the Journal of Financial Economics and the Review of Finance.
John Thanassoulis is the Professor of Financial Economics at Warwick Business School, University of Warwick, and the Associate Dean for Executive Education. In addition John is an Associate Member of the Oxford-Man Institute at the University of Oxford, and an Associate Member of Nuffield College, Oxford University. For nine years prior to this he was the Heyman/Moritz Official Student (Fellow) of Economics at Christ Church, Oxford and a University Lecturer in the Department of Economics, Oxford University. John is a member of the UK Competition Commission Academic Panel, an academic advisor to OFCOM, and Treasurer of the Blackfriars Overseas Aid Trust (charity number 288585). John was a Non-Executive Director of Oxford Investment Partners (OXIP) until its acquisition by Towers Watson, and sat on the steering panel for the Department of Business Innovation and Skills investigation into Metrics and Models for Long-Term Investment. John was educated at both Oxford and Cambridge, studying Mathematics followed by Economics. John has been a visiting professor at the Bank of England, the Banque de France, and TSE, Toulouse. His current major research projects include the link between bankers’ pay and financial stability; how to correct bonuses to prevent excessive risk taking; access to credit and firm performance; the impact of short term shareholders on CEOs and on bubbles in productive assets; upstream mergers and competition law; bundling as a pricing strategy; and the analysis of consumer bargaining.