The importance of considering optimal government policy when social norms matter for the private provision of public goods

Guy Meunier and Ingmar Schumacher

No 2017.17, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: Social pressure can help overcome the free rider problem associated with public good provision. In the social norms literature concerned with the private provision of public goods there seems to be an implicit belief that it is best to have all agents adhere to the `good' social norm. We challenge this view and study optimal government policy in a reference model (Rege, 2004) of public good provision and social approval in a dynamic setting. We discuss the problem with the standard crowding in and out argument and analyze the relationship with Pigouvian taxes. We show that even if complete adherence to the social norm maximizes social welfare it is by no means necessarily optimal to push society towards it. We stress the different roles of the social externality and the public good problem. We discuss the role of the cost of public funds and show how it can create path dependency, multiplicity of optimal equilibria and optimal paths, and discuss the role of parameter instability. We argue that extreme care must be taken when formulating policies and subsequent results will fully depend on this formulation.

Keywords: government policy; optimal policy; public goods; social norms (search for similar items in EconPapers)
JEL-codes: H23 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-09
New Economics Papers: this item is included in nep-pbe, nep-reg and nep-soc
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http://faere.fr/pub/WorkingPapers/Meunier_Schumacher_FAERE_WP2017.17.pdf First version, 2017 (application/pdf)

Related works:
Journal Article: The importance of considering optimal government policy when social norms matter for the private provision of public goods (2020)
Working Paper: The Importance of Considering Optimal Government Policy When Social Norms Matter for the Private Provision of Public Goods (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fae:wpaper:2017.17

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