Abstract
The evidence shows that in many important economic domains, many people are either predisposed to engage in `socially responsible actions' and/or required by regulations to do so. Examples include pollution abatement activity, behavior in a commons, and contributions to charity. We propose a general framework of analysis for modelling such actions and the role of public policy in encouraging these actions in an equilibrium setting. Multiple equilibria are endemic in these situations. We show that it is possible to conduct interesting and meaningful analysis in the presence of multiple equilibria. We examine the role of optimal public policy such as subsidies, taxes and direct government grants in engineering moves from less to more desirable equilibria. We highlight a new role for leadership contributions in facilitating moves between multiple equilibria. We also conduct a welfare analysis of the optimal mix between private and public actions.
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