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The Social Contracts with Endogenous Sentiments

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  • Joan Esteban
  • Laurence Kranich

Abstract

We present a model in which an individual's sentiments toward others are determined endogenously on the basis of how they perform relative to the societal average. This, in turn, affects the individual's own behavior and hence other agent's sentiments toward her. We focus on stationary patterns of utility interdependence in a production economy with redistributive taxation. There are two types of stationary equilibria: one in which all agents conform to the societal norm, and a second involving social stratification on the basis of productivity into two or three groups. We show that both types of social contract can be sustained as a political equilibrium. In the cohesive equilibrium with high redistribution, sentiments will be such that a majority of individuals will support high taxation, while in the clustered society with low redistribution the majority of voters will be in favor of keeping taxes low.

Suggested Citation

  • Joan Esteban & Laurence Kranich, 2003. "The Social Contracts with Endogenous Sentiments," Working Papers 71, Barcelona School of Economics.
  • Handle: RePEc:bge:wpaper:71
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    2. Miquel Pellicer & Vimal Ranchhod & Mare Sarr & Eva Wegner, 2011. "Inequality Traps in South Africa: An overview and research agenda," SALDRU Working Papers 57, Southern Africa Labour and Development Research Unit, University of Cape Town.
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    4. Roland Iwan Luttens & Marie-Anne Valfort, 2012. "Voting for Redistribution under Desert-Sensitive Altruism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 881-907, September.
    5. Benabou, Roland, 2008. "Ideology," IZA Discussion Papers 3416, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Endogenous altruism; income taxation; social contract;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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