6533b7dcfe1ef96bd12720ec
RESEARCH PRODUCT
Interventions with Sticky Social Norms: A Critique
David K. LevineSalvatore ModicaRohan Duttasubject
0502 economics and business05 social sciencesPsychological interventionEconomics050206 economic theory050207 economicssocial mechanisms pigouvian taxes adjustment costsGeneral Economics Econometrics and FinanceSocial psychologydescription
Abstract We study the consequences of policy interventions when social norms are endogenous but costly to change. In our environment, a group faces a negative externality that it partially mitigates through incentives in the form of punishments. In this setting, policy interventions can have unexpected consequences. The most striking is that when the cost of bargaining is high, introducing a Pigouvian tax can increase output—yet in doing so increase welfare. An observer who saw that an increase in a Pigouvian tax raised output might wrongly conclude that this harmed welfare and that a larger tax increase would also raise output. This counter-intuitive impact on output is demonstrated theoretically for a general model and found in case studies for public goods subsidies and cartels.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2021-04-06 | Journal of the European Economic Association |