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Social pressure can help overcome the free rider problem associated to public good provision.
In the social norms literature concerned with the private provision of public goods there seems to be an implicit belief that it is always best to induce all agents to adhere to the `good' social norm of contribution.
We challenge this view and study optimal government policy in a reference model Rege (2004) of public good provision and social approval in a dynamic setting. We show that even if complete adherence to the social norm is a potential equilibrium it is by no means necessarily optimal to push society towards it. We show that optimal government policy may consist of inducing any conceivable level of the social norm, from pushing everyone out of the norm to interior solutions or inducing everyone to adhere to the social norm. In addition, we demonstrate that the way one models government policy has crucial implications for the optimal equilibria. Thus, we argue that extreme care must be taken when formulating policies and subsequent results will fully depend on this formulation.
