ABSTRACT
When consumers, workers, and citizens exhibit social preferences, businesses and governments have at their disposal a broader range of levers to influence behavior. And policies that optimize profits or welfare with standard self-interested individuals may no longer be optimal in a world characterized by altruism, envy, reciprocity, and social image concerns. This chapter explores both the evidence and theory for the impact of social preferences on markets and public policy. It begins with employer practices to promote worker motivation and satisfaction. The reciprocal gift-exchange relationship between workers and firms can also help to explain the persistence of unemployment. The second half of the chapter turns to the implications for public policy, including traditional tax policy (charitable giving tax breaks, income taxes, and luxury taxes), as well as nudges that shape social pressure for voting and tax compliance.
