The importance of considering optimal government policy when social norms matter for the private provision of public goods

Abstract

We study optimal government policy in a reference model (Rege, 2004, Journal of Public Economic Theory, 6, 65-77) of public good provision and social approval in a dynamic setting. We show that even if complete adherence to the social norm maximizes social welfare it is by no means necessarily optimal to push society toward it. We stress the different roles of social externality and the public good problem. We discuss the problem with the standard crowding in and out argument and analyze the relationship with Pigouvian taxes. We discuss the role of the cost of public funds and show how it can create path dependency, the multiplicity of both optimal equilibria and optimal paths, and discuss the role of parameter instability.

Affective social policy

“…39 Long (2020) combines these aspects in a model of intergenerational transmission of prosocialness together with a warm-glow tendency to conform to cultural norms. Also, Rege (2004) and Meunier and Schumacher (2020) investigate the use of public policy to encourage private contributions to a public good when agents' benefit from contributing (i.e., adhering to the norm) increases with the number of agents who do so.…”

Tax evasion with a conscience

“…Rather than taking policy as given, like as Reinganum and Wilde (1985) and Graetz et al (1986), we model a game between taxpayer and tax authority. Gahvari and Micheletto (2020), Meunier andSchumacher (2020), andJung et al (2021) are recent examples that study the consequences of taxpayer behavior on optimal policy.…”

Introduction to the special issue on markets, policies, and economic design: Theory and experiments

“…To point to just a few recent JPET articles on this topic, see, for example,Bethencourt and Kunze (2019),Meunier and Schumacher (2020), and Sinclair-Desgagné (2020); there are many more Long (2020). addresses when prosocial behavior is likely to be transmitted across generations.…”