Social norms and economic incentives in the welfare state

This paper analyzes the interplay between social norms and economic incenti ves in the context of work decisions in the modern welfare state. We assume that to live off one's own work is a social norm, and that the larger the population share adhering to this norm, the more intensely it is felt by th e individual. Individuals face two choices: one economic, whether to work o r Live off public transfers; and one political, hear large the transfer sho uld be. The size of the transfer and the intensity of the social norm are d etermined endogenously in equilibrium.