Optimal incentives on multiple prosocial activities when reputation matters

Abstract

In this paper we present a signaling model in which individuals engage in socially bene cial but costly activities to convey information about their willingness to cooperate with other agents. When several activities are available, the inclusion of monetary compensations in anyone of them affects the relative costs of undertaking each activity and, therefore, their informative value for agents. We fi nd the subsidies that maximize social welfare, which are shown to depend critically on the reputation gained from each activity. Finally, we use comparative statics analysis to study the effects on optimal subsidies of changes in their determinants.