Enhancing The Effectiveness of Moral Suasion As A Policy Instrument
Moral suasion is used when economically rational individual behaviours of economic agents do not maximise collective welfare. Moral suasion will therefore be a more effective policy tool if these rational economic agents can be persuaded that it is in their long-term interest to comply with the intended government policies, even when they are not profit-maximising in the short run.
This can be done in two ways. First, governments can build a high level of trust between themselves and market participants. This can be achieved through good governance, clear communication, and a delivering on their promises. Second, governments can ensure that their threats are seen as credible by acting on them and publicising their actions, so that future non-compliance will be deterred.
Gaining the support of the population is also increases the effectiveness of moral suasion. This can be done through active citizen participation in the government decisionning process as well as information and publicity campaigns.
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