The Limit of Public Policy: Endogenous Preferences.

In designing public policy it is not enough to consider the possible reaction of individuals to the chosen policy. Public policy may also affect the formation of preferences and norms in a society. The endogenous evolution of preferences, in addition to introducing a conceptual difficulty in evaluating policies, may also eventually affect actual behavior. In order to demonstrate the implications of endogenous preferences on the design of optimal public policy, we present a model in which a subsidy policy is set to encourage contributions towards a public good.