This paper analyzes the interactions between social norms (i.e. informal sanctions or rewards), the prevalence of pro-social and anti-social acts, and policies, and how these interactions are shaped by people’s inability to directly observe actors’ behaviour. The unobservability of actions causes norms to be ineffective incentives when acts are committed either very frequently or very infrequently. This is because noisy signals of behaviour are too weak to substantially alter people’s beliefs about others’ behaviour. This statistical consideration cuts against the dynamics of the ” honour-stigma” model (Benabou and Tirole 2011) and completely reverses the implications with even small signalling errors. We also characterize the optimal policies with respect to formal incentives and to the review processes through which incentives ought to be provided. Results highlight that the nature of acts, rather than their social prevalence, is a more plausible source of variation in the reputational impacts associated with different types of acts.

This paper was developed with Claude Fluet (Universite Laval CRREP, CRED).

About the presenter’s visit

Professor Murat Mungan has been visiting the School of Economics since 24 February 2020.  While here he has been using room 633 Colin Clark Building.  If you would like to meet with him please contact Dr Carlos Oyarzun who has been his host while at The University of Queensland.  Dr Oyarzun can be contacted on c.oyarzun@uq.edu.au.

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