Social Norm Formation: The Role of Esteem

Norms play an important role in shaping behavior, but our understanding of norm formation is incomplete. This paper views norms as shared values. In the model, players choose values, motivated by economic considerations and, crucially, also by the desire for esteem. The comparative statics are driven by the following tension: players obtain more esteem from peers if they conform; but they may obtain more self-esteem if they di¤erentiate. This tension explains why, for instance, peer e¤ects are sometimes positive and sometimes negative. We discuss three illustrations, related to: schools, inner cities, and organizational “resistance.” (JEL: Z13, J01.) University of Warwick, [email protected]. I would like to thank George Akerlof, Robert Gibbons, Rachel Kranton, Laurence Kotliko¤, and seminar participants at the University of Warwick for their suggestions and support.