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The Relevance of Social Norms for Economic Efficiency: Theory and its Empirical Test

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    Abstract

    This paper proposes a new formulation of the theory of social norms. The theoretical model explores the interrelation between individuals' income, time-use and consumption decisions on the one hand, and the determinants of their decision to conform or not to social norms on the other. It is shown that rational consumers will obey inefficient social norms, which in turn will slow economic development. An empirical test of the model is performed for different categories of countries using a voluminous cross-country micro dataset. The results yield the gain and the cost of disobeying inefficient social norms, the latter of which can be used as a freedom indicator regarding social pressure.

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2013/13038.pdf
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    Bibliographic Info

    Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 13038.

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    Length: 30 pages
    Date of creation: Apr 2013
    Date of revision:
    Handle: RePEc:mse:cesdoc:13038

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    Keywords: Consumer theory; social norms; social interactions; household production model; economic efficiency.;

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    1. Akerlof, George A, 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 749-75, June.
    2. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
    3. George A. Akerlof & Rachel E. Kranton, 2000. "Economics And Identity," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 715-753, August.
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