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Social Preferences and Public Economics: Mechanism design when social preferences depend on incentives


  • Samuel Bowles

    () (Santa Fe Institute, University of Siena and University of Massachusetts)

  • Sung Ha Hwang

    () (University of Massachusetts, Amherst)


Social preferences such as altruism, reciprocity, intrinsic motivation and a desire to uphold ethical norms are essential to good government, often facilitating socially desirable allocations that would be unattainable by incentives that appeal solely to self-interest. But experimental and other evidence indicates that conventional economic incentives and social preferences may be either complements or substitutes, explicit incentives crowding in or crowding out social preferences. We investigate the design of optimal incentives to contribute to a public good under these conditions. We identify cases in which a sophisticated planner cognizant of these non-additive effects would make either more or less use of explicit incentives, by comparison to a naive planner who assumes they are absent. JEL Categories: D52, D64, H21. H41

Suggested Citation

  • Samuel Bowles & Sung Ha Hwang, 2008. "Social Preferences and Public Economics: Mechanism design when social preferences depend on incentives," UMASS Amherst Economics Working Papers 2008-06, University of Massachusetts Amherst, Department of Economics.
  • Handle: RePEc:ums:papers:2008-06

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    More about this item


    Social preferences; implementation theory; incentive contracts; incomplete contracts; framing; motivational crowding out; ethical norms; constitutions;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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