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The importance of considering optimal government policy when social norms matter for the private provision of public goods

Author

Listed:
  • Guy Meunier

    (INRA)

  • Ingmar Schumacher

    (IPAG Business School)

Abstract

Social pressure can help overcome the free rider problem associated with public good provision. In the social norms literature concerned with the private provision of public goods there seems to be an implicit belief that it is best to have all agents adhere to the `good' social norm. We challenge this view and study optimal government policy in a reference model (Rege, 2004) of public good provision and social approval in a dynamic setting. We discuss the problem with the standard crowding in and out argument and analyze the relationship with Pigouvian taxes. We show that even if complete adherence to the social norm maximizes social welfare it is by no means necessarily optimal to push society towards it. We stress the different roles of the social externality and the public good problem. We discuss the role of the cost of public funds and show how it can create path dependency, multiplicity of optimal equilibria and optimal paths, and discuss the role of parameter instability. We argue that extreme care must be taken when formulating policies and subsequent results will fully depend on this formulation.

Suggested Citation

  • Guy Meunier & Ingmar Schumacher, 2017. "The importance of considering optimal government policy when social norms matter for the private provision of public goods," Working Papers 2017.17, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:wpaper:2017.17
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    File URL: http://faere.fr/pub/WorkingPapers/Meunier_Schumacher_FAERE_WP2017.17.pdf
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    Cited by:

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    2. Rabah Amir & Myrna Wooders, 2021. "Introduction to the special issue on markets, policies, and economic design: Theory and experiments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 765-771, October.
    3. Qin, Botao & Shogren, Jason, 2023. "Endogenous Social Norms, Mechanism Design, and Payment for Environmental Services," MPRA Paper 112878, University Library of Munich, Germany.
    4. Laurence Kranich, 2022. "Affective social policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(2), pages 362-379, April.
    5. Martin Dufwenberg & Katarina Nordblom, 2022. "Tax evasion with a conscience," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(1), pages 5-29, February.
    6. Botao Qin & Jason F Shogren & Thorsten Janus, 2025. "The effects of social norm sensitivity in a PES mechanism," Economics Bulletin, AccessEcon, vol. 45(2), pages 792-800.

    More about this item

    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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