Scandinavian Working Papers in Economics
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Department of Economics, Uppsala University Working Paper Series, Department of Economics, Uppsala University

No 1997:28:
Social Norms and Moral Hazard

Martin Dufwenberg () and Michael Lundholm ()

Abstract: The probability of income loss depends on talent and effort. Effort has positive externalities and therefore individuals are proportion to their perceived diligence. The social norm requires more effort from individuals perceived as more talented, but talent is private information and individuals cunningly choose effort so as to manipulate the public perception of their talent. We analyze the workings of a social insurance system in this setting. It turns out that social norms may mitigate moral hazard. However, the distribution of social status in society will not be uniform.

Keywords: Social insurance; social norms; status; moral hazard; (follow links to similar papers)

JEL-Codes: A14; C72; D81; D82; G28; H55; I38; J65; (follow links to similar papers)

22 pages, November 25, 1997

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This paper is published as:
Dufwenberg, Martin and Michael Lundholm, (2001), 'Social Norms and Moral Hazard', Economic Journal, Vol. 111, No. 473, pages 506-525

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