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

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  • Guy Meunier
  • Ingmar Schumacher

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.

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  • Guy Meunier & Ingmar Schumacher, 2020. "The importance of considering optimal government policy when social norms matter for the private provision of public goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 630-655, June.
    • Handle: RePEc:bla:jpbect:v:22:y:2020:i:3:p:630-655
    DOI: 10.1111/jpet.12418
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    2. Qin, Botao & Shogren, Jason, 2023. "Endogenous Social Norms, Mechanism Design, and Payment for Environmental Services," MPRA Paper 112878, University Library of Munich, Germany.
    3. Martin Dufwenberg & Katarina Nordblom, 2022. "Tax evasion with a conscience," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(1), pages 5-29, February.
    4. Laurence Kranich, 2022. "Affective social policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(2), pages 362-379, April.

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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