| Abstract: |
We observe that countries where belief in the "American dream" (i.e., effort
pays) prevails also set harsher punishment for criminals. We know from
previous work that beliefs are also correlated with several features of the
economic system (taxation, social insurance, etc). Our objective is to study
the joint determination of these three features (beliefs, punitiveness and
economic system) in a way that replicates the observed empirical patterns. We
present a model where beliefs determine the types of contracts that firms
offer and whether workers exert effort. Some workers become criminals,
depending on their luck in the labor market, the expected punishment, and an
individual shock that we call "meanness". It is this meanness level that a
penal system based on "retribution" tries to detect when deciding the severity
of the punishment. We find that when initial beliefs differ, two equilibria
can emerge out of identical fundamentals. In the "American" (as opposed to the
"French") equilibrium, belief in the "American dream" is commonplace, workers
exert effort, there are high powered contracts (and income is unequally
distributed) and punishments are harsh. Economists who believe that deterrence
(rather than retribution) shapes punishment can interpret the meanness
parameter as pessimism about future economic opportunities and verify that two
similar equilibria emerge. |