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Dynamic Policy in the Presence of Social Norms
Project funded by own resources
Project title Dynamic Policy in the Presence of Social Norms
Principal Investigator(s) Hintermann, Beat
Organisation / Research unit Departement Wirtschaftswissenschaften / Public Economics / Public Finance (Hintermann)
Project start 01.01.2019
Probable end 31.12.2023
Status Completed

Individuals' actions may depend on prevailing social norms. We investigate how optimal policy should exploit the underlying social dynamics using a dynamic model of prosocial action in which conformist consumers choose whether to engage in some prosocial activity in every period. Individual behavior is not observed, but the overall participation rate in the previous period is common knowledge. We derive the conditions under which multiple equilibria exist and show that the optimal subsidy exceeds the marginal social benefit of the prosocial action as it additionally includes the social marginal value of participation. We find that the optimal subsidy can decrease before reaching the steady state-level and may follow a nonlinear path initially. Our model thus provides a rationale for introductory subsidies from a behavioral perspective.

Financed by University funds

Cooperations ()

  ID Kreditinhaber Kooperationspartner Institution Laufzeit - von Laufzeit - bis
978089  Hintermann, Beat  Lange, Andreas, Professor for Public Finance  University of Hamburg  01.01.2010  31.12.2020 

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