On Esteem-Based Incentives

Abstract

The rise of the internet, increased connectivity and higher availability of personal data increases the relevance of incentives based on reputation and the allocation of esteem. However, their use is controversial: critics argue that shaming can lead to a loss of control over the size of the sanction and to mob justice. We use the signaling model of social behavior by Benabou and Tirole (2011) to explore the effect of esteem-based incentives and their interaction with traditional fines. We show that the use of esteem and stigma can indeed lead to a loss of control by generating multiple equilibria, some of which feature high levels of compliance and high levels of stigma. Moreover, the deterrent effect of monetary and esteem incentives is interdependent. If both types of incentives are costly to implement, esteem incentives should optimally be used relatively more for rare behaviors and in societies that have more heterogenous values.