Prescriptive norms and social comparisons (Q1712176)

Summary: This paper analyzes the equilibrium strength of prescriptive norms to contribute to public goods. We consider three methods of establishing what an acceptable contribution to the public good is. Under the first method, the contribution of the bottom contributor is the reference point by which the comparison is being made; under the second, the median contribution is the reference point; and under the third the top contribution is the reference. The first method results in a unique equilibrium and the reference contribution is endogenously low. Each of the latter two methods allows for multiple equilibria differing in contributions made and thus in the strength of the norm to contribute. Comparing the methods we show that the median reference allows for the highest equilibrium contributions and welfare of all methods hence is the preferred method if, among the multiple equilibria, the best one can be selected. However, the bottom-reference is the maximin method, i.e., it provides safe minimal aggregate contribution and welfare that surpass the worst outcome in the other two methods.