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Social Norms and Moral Hazard

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Author Info
Dufwenberg, Martin
Lundholm, Michael

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Abstract

We examine the impact of social rewards in an unemployment insurance context. A social norm requires effort in proportion to perceived talent, but individuals cunningly choose effort so as to manipulate the perception of their talent. The model predicts that low talented individuals increase effort in response to more generous unemployment insurance. The welfare consequences of the social rewards are ambiguous. Social rewards boost effort, but for individuals with low talent more than any real economic concern can justify. Moreover, the distribution of social respect is slanted in favour of the more talented.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 111 (2001)
Issue (Month): 473 (July)
Pages: 506-25
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Handle: RePEc:ecj:econjl:v:111:y:2001:i:473:p:506-25

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lindbeck, A & Nyberg, S & Weibull, J-W, 1997. "Social Norms and Economic Incentives in the Welfare State," Research Institute of Industrial Economics Working Papers 476, Research Institute of Industrial Economics (IFN).
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  2. Fershtman, Chaim & Weiss, Yoram, 1993. "Social Status, Culture and Economic Performance," Economic Journal, Royal Economic Society, vol. 103(419), pages 946-59, July. [Downloadable!] (restricted)
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  3. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug.. [Downloadable!] (restricted)
  4. Dutta, Prajit K. & Radner, Roy, 1994. "Moral hazard," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 26, pages 869-903 Elsevier. [Downloadable!] (restricted)
  5. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May. [Downloadable!] (restricted)
  6. Gottfries, N. & Mccormick, B., 1990. "Discrimination And Open Unemployment In A Segmented Labour Market," Papers 460, Stockholm - International Economic Studies.
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  7. Arnott, Richard & Stiglitz, Joseph E, 1991. "Moral Hazard and Nonmarket Institutions: Dysfunctional Crowding Out or Peer Monitoring?," American Economic Review, American Economic Association, vol. 81(1), pages 179-90, March. [Downloadable!] (restricted)
  8. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 541-62, November. [Downloadable!] (restricted)
  9. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August. [Downloadable!] (restricted)
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  10. Fershtman, C. & Weiss,Y., 1995. "Social Rewards, Externalities and Stable Preferences," Papers 32-95, Tel Aviv.
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  11. Besley, Timothy & Coate, Stephen, 1992. "Understanding welfare stigma: Taxpayer resentment and statistical discrimination," Journal of Public Economics, Elsevier, vol. 48(2), pages 165-183, July. [Downloadable!] (restricted)
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  12. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ernst Fehr, 2003. "Psychological Foundations of Incentives," Microeconomics 0305010, EconWPA. [Downloadable!]
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  2. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics. [Downloadable!]
    Other versions:
  3. Alessandro Balestrino & Cinzia Ciardi, 2007. "Social Norms, Cognitive Dissonance and the Timing of Marriage," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Pierpaolo Battigalli & Martin Dufwenberg, 2005. "Dynamic Psychological Games," Working Papers 287, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  5. Ernst Fehr & Urs Fischbacher, . "Why Social Preferences Matter - The Impact of Non-Selfish Motives on Competition," IEW - Working Papers iewwp084, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  6. Gary Charness & Antonio Cabrales, 2008. "Optimal Contracts With Team Production And Hidden Information: An Experiment," University of California at Santa Barbara, Economics Working Paper Series 12-08, Department of Economics, UC Santa Barbara. [Downloadable!]
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  7. Alessandro Balestrino, 2009. "Tax avoidance, endogenous social norms, and the comparison income effect," CHILD Working Papers wp15_09, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY. [Downloadable!]
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  8. Alessandro Balestrino, 2007. "It is a Theft but not a Crime," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  9. Gary Charness & Martin Dufwenberg, 2004. "Promises and Partnership," Levine's Bibliography 122247000000000001, UCLA Department of Economics. [Downloadable!]
    Other versions:
  10. Ernst Fehr & Urs Fischbacher, 2004. "Social norms and human cooperation," Macroeconomics 0409026, EconWPA. [Downloadable!]
  11. Antonio Cabrales & Gary Charness, 2000. "Optimal Contracts, Adverse Selection, and Social Preferences: An Experiment," Economics Working Papers 478, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  12. Matthew Jowett, 2004. "Theoretical insights into the development of health insurance in low-income countries," Working Papers 188chedp, Centre for Health Economics, University of York. [Downloadable!]
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