Self-Esteem, Moral Capital, and Wrongdoing

We present an infinite-horizon model of moral standards where self-esteem and unconscious drives play key roles. In the model, an individual receives random temptations (such as bribe offers) and must decide which to resist. Individual actions depend both on conscious intent and a type reflecting unconscious drives. Temptations yield consumption value, but keeping a good self-image (a high belief of being the type of person that resists) 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 persistent effects on wrongdoing that fade only as new generations replace the shocked cohorts. Small parametric differences across societies may lead to large wrongdoing differentials, and societies with the same moral fundamentals may display different wrongdoing rates depending on how much past luck has polarized the distribution of individual beliefs. The model illustrates how optimal deterrence may change under endogenous moral costs and how wrongdoing may be compounded as high temptation activities attract individuals with low moral capital.