How hard it is scoring a bullseye: Public policies and compliance hesitancy in heterogeneous populations

Margherita Saraceno (Università degli Studi di Pavia)
Giorgio Rampa (University of Pavia)

Abstract

The present dynamic Bayes-conjectural model deals with individual compliance and the effectiveness of policies aimed at reducing welfare losses associated to compliance hesitancy. The model fits with various problems when compliance hesitancy contributes to greater welfare losses, including higher average severity of vaccinable diseases associated to insufficient immunisation coverage, too severe average consequences for insurable risks associated to insufficient insurance coverage, excessive tax evasion related to low tax compliance, disproportionate pollution associated with poor compliance with individual environmental practices, etc. The model focuses on how people decide to comply with given good practices/rules aimed at reducing welfare losses based on their conjectures, the available information, and their private costs. At each date, people decide and then update their conjectures based on Public Authority’s communications about the average welfare loss they could suffer, that in turn depends on the overall rate of compliance with the good practices/rules. The resulting conjectural equilibrium compliance rate is unique, however, is compatible with infinitely many different equilibrium subpopulations' priors. These determine the dynamical features of the equilibrium itself. The equilibrium welfare loss is then compared with a policy target-welfare loss to discuss the impact of various policies including nudging and subsidies, information campaigns, mandatory compliance, and investments in new technologies able to reduce welfare losses, either directly or indirectly by making compliance more effective. We conclude that, though the Public Authority can implement effective policies, a specific policy goal cannot be hit with precision. In fact, policy-paths could approach non-equilibrium positions surrounding a target equilibrium or could even be “captured” by the basin of attraction of another equilibrium.

Download the file