The purpose of this theoretical paper is to develop a model to explore the impact of rationalized knowledge hiding on organizational climate and propose an instrumental thinking approach for employees to neutralize the counterproductivity of rationalized knowledge hiding. In this context, the person justifies their inability to supply the required information or puts the blame on external forces. Deceptive knowledge-hiding (playing dumb and evasive hiding) are well-explored counterproductive behaviours that adversely impact the organization’s performance. However, non-deceptive knowledge hiding (rationalized hiding) has not yet been sufficiently explored as a counterproductive behavior. Drawing on the social exchange theory, this moderated mediation study proposes that rationalized knowledge-hiding behavior promotes workplace incivility in employees, and consistent practice of rationalized knowledge hiding at the workplace breaches the psychological contract of the knowledge seekers. In other words, a psychological contract breach mediates the relationship between rationalized knowledge hiding and workplace incivility, and workplace incivility destroys an organization’s climate. To break down the negative chain between rationalized knowledge hiding and organization climate, this study proposes instrumental thinking of employees as a moderator between rationalized knowledge hiding and psychological contract breach. Instrumental thinking refers to chasing a specific end goal in any way required. Our theoretical model provides a framework for future research on knowledge hiding.