Social norms and moral hazard

Martin Dufwenberg, Michael Lundholm

Research output: Contribution to journalArticle

21 Scopus citations

Abstract

We examine the impact of social rewards in an unemployment insurance context. A social norm requires effort in proportion to perceived talent, but individuals cunningly choose effort so as to manipulate the perception of their talent. The model predicts that low talented individuals increase effort in response to more generous unemployment insurance. The welfare consequences of the social rewards are ambiguous. Social rewards boost effort, but for individuals with low talent more than any real economic concern can justify. Moreover, the distribution of social respect is slanted in favour of the more talented.

Original languageEnglish (US)
Pages (from-to)506-525
Number of pages20
JournalEconomic Journal
Volume111
Issue number473
DOIs
StatePublished - Jan 1 2001
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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