342. Louis Kaplow and Steven Shavell, Moral Rules and the Moral Sentiments: Toward a Theory of an Optimal Moral System, 11/2001. subsequently published as “Moral Rules, the Moral Sentiments, and Behaviour: Toward a Theory of an Optimal Moral System,” Journal of Political Economy, Vol. 115, No. 3, June 2007, 494-514.
Abstract: We examine how moral sanctions and rewards, notably the moral sentiments involving feelings of guilt and virtue, would be employed to govern individuals' behavior if the objective were to maximize social welfare. In our model, we analyze how the optimal use of guilt and virtue is influenced by the nature of the behavior under consideration, the costs of inculcating moral rules, constraints on the capacity to experience guilt and virtue, the fact that guilt and virtue often must be applied to groups of acts rather than be tailored to every conceivable type of act, and the direct effect of feelings of guilt and virtue on individuals' utility. We also consider a number of ways that the model could be extended, discuss the extent to which our analysis is consistent with the observed use of guilt and virtue, and relate our conclusions to longstanding philosophical debates about morality.