Evolutionary stability of social norms in a socioeconomic equilibrium model

A hybrid of a model of economic equilibrium in two markets and a social game is formed. The link between the two is established through a social norm that conditions correct social behavior on economic variables and therefore distorts the economic equilibrium allocation. The initial endowment of an individual determines whether she gains from a social norm. The evolution of norms is examined in a dynamic model where norms are more likely to persist if they deliver higher utility to their believers. Also it is assumed that norms lose importance when they are disobeyed by their believers. Optimally coordinating norms are not necessarily evolutionarily stable, and a suboptimal norm can be the outcome of the evolutionary process.     

Norm-Based Trade Union Membership: Evidence for Germany

Abstract. In the absence of closed shops and discriminatory wage policies, union membership can be explained by the existence of social norms. We describe a model, incorporating institutional features of the German labour market, which explicitly allows for social custom effects in the determination of union membership. Using panel data for Germany, we find evidence for according effects which restrict free‐riding. The impact of social norms tends to increase with net union density. Hence, observed reductions in the demand for union membership can weaken the impact of a norm and accentuate the free‐rider problem.     

社会互动与投资选择

个体的投资选择是否受到社会互动的影响?社会互动的作用机制是什么?采用2005年中国12城市投资者行为调查数据,本文发现,总体而言,社会互动推动了个体当前和未来期望对银行存款、外汇、股票、债券、期货、基金、借出、做生意、保险金、收藏品、房地产、理财产品、彩票等投资项目的参与。社会互动的积极作用主要是通过个体遵循参考群体成员的投资选择所体现的社会规范来实现的。此外,内生互动带来的感受交流和信息获得分别推动了个体当前对保险金和未来期望对债券的投资,而情景互动降低了个体未来参与股市的期望。     

Cooperation Norms in Multiple‐Stage Punishment

We analyze the interplay between cooperation norms and people’s punishment behavior in a social‐dilemma game with multiple punishment stages. By combining multiple punishment stages with self‐contained episodes of interaction, we are able to disentangle the effects of retaliation and norm‐related punishment. An additional treatment provides information on the norms bystanders use in judging punishment actions. Partly confirming previous findings, punishment behavior and bystanders’ opinions are guided by an absolute norm. This norm is consistent over decisions and punishment stages and requires full contributions. In the first punishment stage, our results suggest a higher personal involvement of punishers, leading to a nonlinearity defined by the punishers’ contribution. In later punishment stages, the personal‐involvement effect vanishes and retaliation kicks in. Bystanders generally apply the same criteria as punishers in all stages.     

Redistributive Taxation and Public Education

This paper examines the relative effectiveness of publicly provided ‘white collar’ professional (university) education versus ‘blue collar’ vocational training in achieving the government's redistributive goals. Although professional education directly benefits high‐skill high‐income workers and vocational training directly benefits low‐skill low‐income workers, we show that either provision of more professional education or less vocational training than in the first‐best allocation is optimal along the second‐best Paretian frontier since this facilitates incentive compatibility in labor supply decisions. Accordingly, the observation that public higher education expenditures in most countries favor universities is not necessarily inconsistent with an optimal redistributive program.     

Woodsy the optimal owl: Environmental campaigns, norms, and implications for public goods policy

Norms regarding private provision of a public good (e.g. cutting down on energy use, not littering) can affect the marginal gains from contributing to a public good and therefore people's decisions about contributing to the public good. A model is proposed in which norms of private contributions to a public good can be influenced by public policy, and these norms affect people's self-image, which derives from a comparison of one's own contribution with the norm contribution. In this context, we examine the conditions under which private contributions to a public good are efficient, and the conditions under which policy affecting these norms improves social welfare. We find that (1) a benevolent social planner who fails to account for private provision norms will underprovide the public good, and (2) public policy that attempts to raise the norm contribution of private provision can increase social welfare if the effect of raising the norm does not have an extreme negative effect - either extremely small or extremely large - on peoples' self-image.     

Inequality Perceptions,Distributional Norms,and Redistributive Preferences in East and West Germany

This paper analyzes differences in inequality perceptions, distributional norms, and redistributive preferences between East and West Germany. As expected, there are substantial differences with respect to all three of these measures. Surprisingly, however, differences in distributional norms are much smaller than differences with respect to inequality perceptions or redistributive preferences. Moreover, individuals from East Germany tend to be more supportive of state redistribution and progressive taxation and they are less likely to have a conservative political orientation. I finally show that a substantial part of these differences in political preferences can be explained by underlying differences in redistributive preferences.     

PUBLIC GOOD PROVISION AND THE COMPARATIVE STATICS OF OPTIMAL NONLINEAR INCOME TAXATION*

Comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs an income tax schedule for redistributive purposes and provides a public good optimally. There are two types of individuals, distinguished by their skill levels, who have the same quasilinear preferences for labor supply and the consumption of a private and a public good. Comparative statics are obtained for the weights in a weighted utilitarian social welfare function, the prices of the two goods, a taste parameter that measures the onerousness of working, and the skill levels.     

On the Regulation of Social Norms

A model is developed to understand how norms can be influencedby "norm entrepreneurs," for example, lawmakers, governmentagencies, unions, etc. Two instruments of influencing the dynamicsof norm-following behavior are analyzed, namely transformingthe (monetary) incentives and changing the meaning or the reputationalvalue of following a norm. Both forms of norm regulation areincorporated into Akerlof's model of social custom (1980), andthe comparative static properties of norm destruction and normcreation for different types of norms are derived. In particular,it is shown how norms should be regulated when almost everybodyfollows them and when they take the form of bandwagon and snobnorms.     

Flat income taxation,redistribution and labour market performance

A flat tax rate on labour income has gained popularity in European countries. This article assesses the attractiveness of such a flat tax in achieving redistributive objectives with the smallest distortions to employment. We do so by using a detailed applied general equilibrium model for the Netherlands. The model is empirically grounded in the data and encompasses decisions on hours worked, labour force participation, skill formation, wage bargaining between unions and firms and a wide variety of institutional details. The simulations suggest that the replacement of the current tax system in the Netherlands by a flat rate will harm labour market performance if aggregate income inequality is contained. Only flat tax reforms that reduce redistribution will raise employment. This finding bolsters the notions from optimal tax literature regarding the equity-efficiency trade off and the superiority of nonlinear taxes to obtain redistributive goals in an efficient way.     

Non‐Governmental Public Norm Enforcement in Large Societies as a Two‐Stage Game of Voluntary Public Good Provision

In small groups, norm enforcement is achieved through mutual punishment and reward. In large societies, norms are enforced by specialists such as government officials. However, not every public cause is overseen by states, for instance those organized at the international level. This paper shows how nongovernmental norm enforcement can emerge as a decentralized equilibrium. As a first stage, individuals voluntarily contribute to a nongovernmental agency that produces an incentive system. The second stage is the provision of a public good on the basis of private contributions. The incentive system increases contributions by means of public approval or disapproval of behavior. It is shown that, even in large populations, nongovernmental norm enforcement can be supported in a noncooperative equilibrium of utility‐maximizing individuals. This result is in sharp contrast to those obtained in the standard situation of voluntary provision of an intrinsic public good which—without altruism or related motives—is eroded by free‐riding. Reliance on altruistic behavior is not required in supplying the second‐order public good “norm enforcement” in large societies.     

Formal and informal norms: their relationships in society and in the economic sphere

The thesis put forward in this paper is that in social life in general, and in the economic sphere in particular, the relationships between formal norms and informal social norms can be interpreted in terms of either reciprocal complementarity or conflict. The concept of complementarity illustrates how the two kinds of norms cooperate with and reinforce each other, and describes under what circumstances formal norms can or cannot replace informal rules. Conversely, the notion of conflict between different kinds of norms distinguishes two forms of antagonism: prohibition (which occurs when one type of norm prohibits enforcement of the other), and mutual exclusiveness (which occurs when one type of norm crowds out the other, without this entailing prohibition).     

EFFECTS OF TAXES AND BENEFITS ON INCOME DISTRIBUTION IN KOREA

This paper examines the redistributive effects of Korea's fiscal policies, including consumption taxes and in‐kind benefits. Using the Household Income and Expenditure Survey of 2007, we find that taxes and transfers reduce income inequality in Korea by 13.8 percent. Contrary to the popular belief that direct taxes are the key tool for redistribution, in‐kind benefits, direct taxes, and social security contributions all decrease the Gini coefficient by 6.7, 4.7, and 2.9 percentage points, respectively. The redistributive effect of consumption taxes is small and negative (?0.5 percentage point). Policy simulations indicate that education spending financed by the personal income tax has a positive redistributive effect and that the lower 70 percent of households enjoy positive net benefits. Spending targeting the poor has a strong redistributive effect, which implies low popularity because the majority of households face net losses.     

It's a Sin—Contraceptive Use,Religious Beliefs,and Long‐run Economic Development

This study presents a novel theory on the interaction of social norms, fertility, education, and their joint impact on long‐run economic development. The theory takes into account that sexual intercourse is utility enhancing and that the use of modern contraceptives potentially conflicts with prevailing social norms (religious beliefs). The theory motivates the existence of two steady states. At the traditional steady state, the economy stagnates, fertility is high, education is minimal, and the population sustains a norm according to which modern contraceptives are not used. At the modern steady state, the population has abandoned traditional beliefs, modern contraceptives are used, fertility is low and education and economic growth are high. Social dynamics explain why both equilibria are separated by a saddlepoint‐equilibrium (a separatrix), i.e. why it is so hard to transit from the traditional regime to the modern regime.     

Procedural Rationality and Institutions: The Production of Norms by Means of Norms

This paper deals with a cognitivist approach to the problem of how social and economic institutions are formed. The economic framework I use is Simon's model of procedural rationality, integrating a cognitivist approach into a game structure. In game theory norms are seen as conventions, but not all institutions can be explained by game theory models. In cognition-based approaches, the creation and maintenance of institutions is the outcome of a search for satisficing norms. According to Simon and Newell (1972), agents faced with problems to solve visualise a problem as an area of potential situations to examine in order to establish analogical problem structures. In my approach, a norm can be defined within a system of norms that form in a historical-evolutionary dimension, suggesting a path in norm-forming processes.     

Fiscal Discipline as a Social Norm: The European Stability Pact

This paper reviews the arguments for and against the “Stability and Growth Pact.” We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite and plausible conclusions. Empirical evidence in favor of a Pact‐like rule is also scant. We therefore suggest the view that the Stability Pact is a public social norm, that countries obey in order to preserve reputation among the other members of the European Union. Using this extreme—but not implausible—hypothesis, we build a simple model similar in spirit to Akerlof's (1980) seminal work on social norms, and we show that reputation issues may cause the emergence of a stable but inferior equilibrium. Increased heterogenity generally has the effect of further reducing aggregate welfare; we conclude that the problems posed by the Pact/social norm are likely to increase following the enlargement, when a number of countries anxious to prove their “soundness” joined the club.     

Optimal Redistributive Income Taxation and Efficiency Wages*

In this paper, we integrate efficiency wage setting with the theory of optimal redistributive income taxation. In doing so, we use a model with two skill types, where efficiency wage setting characterizes the labor market faced by the low‐skilled, whereas the high‐skilled face a conventional, competitive labor market. We show that the marginal income tax implemented for the high‐skilled is negative under plausible assumptions. The marginal income tax facing the low‐skilled can be either positive or negative, in general. An increase in unemployment benefits contributes to a relaxation of the binding self‐selection constraint, which makes this instrument particularly useful from the perspective of redistribution.     

Optimal unemployment insurance and redistribution

We characterize optimal income taxation and unemployment insurance in a search‐matching framework where both voluntary and involuntary unemployment are endogenous and Nash bargaining determines wages. Individuals decide whether to participate as job seekers and if so, how much search effort to exert. Unemployment insurance trades off insurance versus search and participation incentives. We also allow for different productivity types so there is a redistributive role for the income tax and show that a piecewise linear wage tax internalizes the macro effects arising from endogenous wages. Type‐specific lump‐sum taxes and transfers can then redistribute between individuals of differing skills and employment states. Our analysis embeds optimal unemployment insurance into an extensive‐margin optimal redistribution framework where transfers to the involuntarily and voluntarily unemployed can differ, and nests several standard models in the literature.     

Between centralized and decentralized welfare policy: Have national guidelines constrained the influence of local preferences?

Decentralized welfare services allow more flexibility toward individual needs assessment, but may also have negative consequences such as welfare competition or lack of equity between regions. Does national standardization require full centralization of individual assessment, or can a set of unbinding national guidelines reduce unwanted variation between regions? The case of this article is a national benefit norm for municipal social assistance payments issued by the Norwegian central government in 2001. A large share of municipalities changed their local norms to match the national norm in the following years, but data show that local benefit norms are uncorrelated with the actual payments. The apparent compliance to national guidelines does not translate into actual welfare generosity.Although caseworker discretion is important for individual payments, the municipal level of welfare payments is clearly influenced by local preferences and budget constraints. This implies that political control is active, but through other instruments than the local benefit norms.     

INCOME REDISTRIBUTION IN URBAN CHINA BY SOCIAL SECURITY SYSTEM—AN EMPIRICAL ANALYSIS BASED ON ANNUAL AND LIFETIME INCOME

This study investigates the redistributive effect of social security reform in urban China using the nationally representative urban household surveys of 1995 and 2002. The main findings are as follows. First, public pension is the main income for the elderly in urban China. The majority of people aged 60 and over (72% in 1995 and 82% in 2002) receive a pension. Second, the social security system in urban China has increased the income of low‐income and older age groups and reduced the relative poverty rate. However, the redistributive effect did not offset the expanding income inequality, which resulted in the Gini coefficient of redistributed income in 2002 being higher than that in 1995. Third, during 1995 and 2002, both low‐income and high‐income groups received a positive net benefit from the social security system, but the net benefit increased with income. The Chinese social security system lacks progressivity in contribution, and does not favor the poor in terms of benefits. Fourth, assuming that the reformed policy was applied to public sector employees, the long‐term redistributive effect of the pension system for the working population, calculated using their lifetime income, is larger. (JEL D31, H55, I38)