Optimal Incentives on Multiple Prosocial Activities when Reputation Matters

Francisco Candel‐Sánchez and Juan Perote‐Peña

Scandinavian Journal of Economics, 2020, vol. 122, issue 3, 1207-1230

Abstract: In this paper, we present a signaling model in which individuals engage in socially beneficial but costly activities in order to convey information about their willingness to cooperate with other agents. When several activities are available, the inclusion of monetary compensations in any one of them affects the relative costs of undertaking each activity and, therefore, their informative value for agents. We find the subsidies that maximize social welfare, which are shown to depend critically on the reputation gained from each activity. Finally, we use comparative statics analysis to study the effects on optimal subsidies of changes in their determinants.

Date: 2020
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https://doi.org/10.1111/sjoe.12369

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