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The Social Contract with Endogenous Sentiments

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  • Matteo Cervellati
  • Joan Esteban
  • Laurence Kranich

Abstract

Moral values influence individual behavior and social interactions. A specially significant instance is the case of moral values concerning work effort. Individuals determine what they take to be proper behaviour and judge the others, and themselves, accordingly. They increase their esteem -and self-esteem- for those who perform in excess of the standard and decrease their esteem for those who work less. These changes in self-esteem result from the self-regulatory emotions of guilt or pride extensively studied in Social Psychology. We examine the interactions between sentiments, individual behaviour and the social contract in a model of rational voting over redistribution where individual self-esteem and relative es-teem for others are endogenously determined. Individuals differ in their productivities. The desired extent of redistribution depends both on individual income and on individual attitudes toward others. We characterize the politico-economic equilibria in which sentiments, labor supply and redistribution are simultaneously determined. The model has two types of equilibria. In "cohesive" equilibria, all individuals conform to the standard of proper behaviour, income inequality is low and social esteem is not biased toward any particular type. Under these conditions equilibrium redistribution increases in response to larger inequality. In a "clustered" equilibrium skilled workers work above the mean while unskilled workers work below. In such an equilibrium, income inequality is large and sentiments are biased in favor of the industrious. As inequality increases, this bias may eventually overtake the egoistic demand for greater taxation and equilibrium redistribution decreases. The type of equilibrium that emerges crucially depends on inequality. We contrast the predictions of the model with data on inequality, redistribution, work values and attitudes toward work and toward the poor for a set of OECD countries.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 311.

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Date of creation: Mar 2007
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Handle: RePEc:bge:wpaper:311

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Keywords: Social Contract; Endogenous Sentiments; Voting over Taxes; Moral Work Values; Redistribution; Inequality; Politico-Economic Equilibrium;

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Cited by:
  1. Bénabou, Roland, 2008. "Ideology," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6754, C.E.P.R. Discussion Papers.
  2. Ernesto Dal Bó & Marko Terviö, 2008. "Self-Esteem, Moral Capital, and Wrongdoing," NBER Working Papers 14508, National Bureau of Economic Research, Inc.
  3. R. I. Luttens & M.A. Valfort, 2008. "Voting for redistribution under desert-sensitive altruism," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 08/531, Ghent University, Faculty of Economics and Business Administration.
  4. Mouhoud, El Mouhoub & Miotti, Luis & Oudinet, Joël, 2009. "Migration and Determinants of Remittances to Southern Mediterranean Countries: when history matters! Insights of two new surveys," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/2574, Paris Dauphine University.
  5. Miquel Pellicer & Vimal Ranchhod & Mare Sarr & Eva Wegner, 2011. "Inequality Traps in South Africa: An overview and research agenda," SALDRU Working Papers, Southern Africa Labour and Development Research Unit, University of Cape Town 57, Southern Africa Labour and Development Research Unit, University of Cape Town.

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