Social norms and moral hazard

We examine the impact of social rewards in an unemployment insurance contex t. A social norm requires effort in proportion to perceived talent, but ind ividuals cunningly choose effort so as to manipulate the perception of thei r talent. The model predicts that low talented individuals increase effort in response to more generous unemployment insurance. The welfare consequenc es of the social rewards are ambiguous. Social rewards boost effort, but fo r individuals with low talent more than any real economic concern can justi fy. Moreover, the distribution of social respect is slanted in favour of th e more talented.