Abstract
How should moral sanctions and moral rewards—the moral sentiments involving feelings of guilt and of virtue—be employed to govern individuals’ behavior if the objective is to maximize social welfare? In the model that we examine, guilt is a disincentive to act and virtue is an incentive because we assume that they are negative and positive sources of utility. We also suppose that guilt and virtue are costly to inculcate and are subject to certain constraints on their use. We show that the moral sentiments should be used chiefly to control externalities and further that guilt is best to employ when most harmful acts can successfully be deterred whereas virtue is best when only a few individuals can be induced to behave well. We also contrast the optimal use of guilt and virtue to optimal Pigouvian taxation and discuss extensions of our analysis.
Highlights
The influence of morality on behavior has been a long-standing theme of the analysis of human conduct
Our analysis offers a theory of how moral sanctions and rewards—feelings of guilt and virtue—would best be employed if the purpose were to maximize social welfare
One would not predict a close fit because, as we discuss in Section IV.E, the processes that produce common morality hardly guarantee optimality and may not involve the maximization of social welfare in particular
Summary
The influence of morality on behavior has been a long-standing theme of the analysis of human conduct. The moral sentiments can only imperfectly correct behavior that generates externalities, because of the cost of inculcating the moral sentiments, limits on the capacity of individuals to experience them, and the need to instill guilt and virtue at uniform levels over groups of acts that may exhibit heterogeneity. Regarding the latter, suppose that most but not all acts in a group are undesirable; some desirable acts in the group may be deterred by the moral sentiments, and other desirable acts will be committed but result in individuals’ feeling guilty as a consequence. In the familiar first-best solution to the usual problem of social welfare maximization, an act in a situation is committed if and only if u 1 h
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