Senior Academic Seminar: David K Levine (European University Institute)

Interventions with sticky social norms: A critique (with Rohan Dutta and Salvatore Modica)

Abstract:  We study the consequences of policy interventions when social norms are endogenous but costly to change. In our environment a group faces a negative externality that it partially mitigates through social norms enforced through peer pressure. In this setting policy interventions can have unexpected consequences. When the cost of norm redesign is high introducing a Pigouvian tax can increase output and when the cost of norm redesign is low intervention may lead instead to tax repeal.

Keywords: endogenous social norms, natural experiments, randomized control trials

Link to paper (.pdf)