Laws and Norms with (Un)Observable Actions
46 Pages Posted: 24 Aug 2020 Last revised: 26 Aug 2020
Date Written: August 24, 2020
We analyze the interactions between social norms, the prevalence of regulated acts, and policies. These interactions are impacted by people's inability to directly observe actors' behavior. Norms are ineffective incentivizers when acts are committed either very frequently or very infrequently, because noisy signals of behavior are then too weak to alter people's beliefs about others' behavior. This cuts against the dynamics of the `honor-stigma' model (Bénabou and Tirole 2006, 2011) and reverses its implications with even moderately noisy signals. With unobservable acts, the review process through which incentives are provided becomes an additional policy variable whose optima we characterize.
Keywords: Norms, social concerns, reputation, esteem, stigma, signaling, regulation
JEL Classification: D62, D64, D82, H41, K10, K4, K42, Z13
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