| Abstract: |
This paper analyzes how private decisions and public policies are shaped by
personal and societal preferences ("values"), material or other explicit
incentives ("laws") and social sanctions or rewards ("norms"). It first
examines how honor, stigma and social norms arise from individuals' behaviors
and inferences, and how they interact with material incentives. It then
characterizes optimal incentive-setting in the presence of norms, deriving in
particular appropriately modified versions of Pigou and Ramsey taxation.
Incorporating agents' imperfect knowledge of the distribution of preferences
opens up to analysis several new questions. The first is social psychologists'
practice of "norms-based interventions", namely campaigns and messages that
seek to alter people’s perceptions of what constitutes "normal" behavior or
values among their peers. The model makes clear how such interventions operate
but also how their effectiveness is limited by a credibility problem,
particularly when the descriptive and prescriptive norms conflict. The next
main question is the expressive role of law. The choices of legislators and
other principals naturally reflect their knowledge of societal preferences,
and these same "community standards" are also what shapes social judgments and
moral sentiments. Setting law thus means both imposing material incentives and
sending a message about society's values, and hence about the norms that
different behaviors are likely to encounter. The analysis, combining an
informed principal with individually signaling agents, makes precise the
notion of expressive law, determining in particular when a weakening or a
strengthening of incentives is called for. Pushing further this logic, the
paper also sheds light on why societies are often resistant to the message of
economists, as well as on why they renounce certain policies, such as "cruel
and unusual" punishments, irrespective of effectiveness considerations, in
order to express their being "civilized". |