Self-Esteem, Moral Capital, and Wrongdoing

We present an in…nite-horizon planner-doer model of moral standards, where individuals receive random temptations (such as bribe o¤ers) and must decide which to resist. Individual actions depend both on conscious deliberation and on a type re‡ecting unconscious drives. Temptations yield consumption value, but con…dence in being the type of person who resists temptations yields self-esteem. We identify conditions for individuals to build an introspective reputation for goodness (“moral capital”) and for good actions to lead to a stronger disposition to do good. Bad actions destroy moral capital and lock-in further wrongdoing. Economic shocks that result in higher temptations have long-lasting e¤ects on wrongdoing. We show how optimal deterrence can change under endogenous moral costs and how wrongdoing can be compounded as high temptation activities attract individuals with low moral capital. Keywords: moral capital, intrinsic motivation, wrongdoing, moral costs, self-esteem, corruption, crime. JEL codes: D83, K4, Z13. Ernesto Dal Bó: Haas School of Business, UC Berkeley and NBER ([email protected]). Marko Terviö: Aalto University (marko.tervio@aalto.…). We thank Roland Bénabou, Jeremy Bulow, Pedro Dal Bó, Erik Eyster, Mitri Kitti, Botond K1⁄2oszegi, Keith Krehbiel, Don Moore, John Morgan, Santiago Oliveros, Demian Pouzo, Matt Rabin, Tim Williamson, and seminar participants at Arizona State, Berkeley, Birmingham, Essex, HECER, Princeton, Stanford, UCSD, and Universidad de San Andrés for useful conversations and comments. Juan Escobar provided excellent research assistance.