Social Sentiments and Their Effects on Communities

Abstract

Several authors recognize that consumers have social sentiments and therefore derive utility from contributing resources to the provision of public goods. However, there is little discussion in the literature on how these sentiments develop. This paper models how social sentiments develop in communities and how they affect private provision. We propose that increases in the provision of public goods lead to increases in consumers’ social sentiments. Given the assumptions of the model a community would converge to an equilibrium level of social sentiments with higher private provision that predicted by traditional theory. Although government provision partially crowds out private provision in the short-run it can increase, or crowds in, private provision in the long run by moving the community to a new equilibrium with higher social sentiments. When consumers have heterogeneous preferences, the government can increase private provision and move the community to an equilibrium with higher social sentiments by redistributing income between consumers.