Laws and Norms

We analyze how private decisions and optimal public policies are shaped by personal and societal preferences, material incentives, and social norms. We show how incentives interact with honor and stigma, deriving optimal taxation. We then analyze the expressive role of law as embodying society’s values and when it calls for a weakening or a strengthening of incentives. The law should be softened when it signals agents’ willingness to contribute to the public good and toughened when it signals social externalities. We also shed light on norms-based interventions, societies’ resistance to economists’ messages, and the avoidance of cruel and unusual punishments.