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The Social Contract with Endogenous Sentiments

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Author Info
Matteo Cervellati () (University of Bologna, IAE Barcelona and IZA Bonn)
Joan Esteban () (IAE Barcelona)
Laurence Kranich () (University at Albany, SUNY)

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Abstract

In this paper we present a model of rational voting over redistribution where individual selfesteem and relative esteem for others are endogenously determined. Individuals differ in their productivities, and their behaviour and political views are influenced by moral standards concerning work. Agents determine what they take to be proper behaviour and they judge others, and themselves, accordingly, increasing their esteem (or self-esteem) for those who perform in excess of the standard and decreasing their esteem for those who work less. The desired extent of redistribution depends both on individual income and on individual attitudes toward others. The model has two types of equilibria. In a “cohesive” equilibrium, 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 to emerge 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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2312.

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Length: 48 pages
Date of creation: Sep 2006
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Handle: RePEc:iza:izadps:dp2312

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Related research
Keywords: social contract; endogenous sentiments; voting over taxes; social norms; redistribution; inequality; politico-economic equilibrium;

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Find related papers by JEL classification:
D64 - Microeconomics - - Welfare Economics - - - Altruism
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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References listed on IDEAS
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Full references

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. Bénabou, Roland, 2008. "Ideology," CEPR Discussion Papers 6754, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Ernesto Dal Bó & Marko Terviö, 2008. "Self-Esteem, Moral Capital, and Wrongdoing," NBER Working Papers 14508, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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