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Moral Hazard and Moral Motivation: Corporate Social Responsibility as Labor Market Screening

Morally motivated individuals behave more cooperatively than predicted by standard theory. Hence,if a firm can attract workers who are strongly motivated by ethical concerns, moral hazard problems like shirking can be reduced. We show that employers may be able to use the firm’s corporate social responsibility profile as a screening device to attract more productive workers. Both pooling and separating equilibria are possible. Even when a substantial share of the workers have no moral motivation whatsoever, such screening may in fact drive every firm with a low social responsibility profile out of business.