• The editor in charge of this paper was Stefano DellaVigna.

  • Acknowledgments: We thank Roland Bénabou, Jeremy Bulow, Pedro Dal Bó, Erik Eyster, Mitri Kitti, Botond Kőszegi, Keith Krehbiel, Don Moore, John Morgan, Santiago Oliveros, Demian Pouzo, Matt Rabin, Tim Williamson, and seminar participants at Arizona State, Berkeley, Birmingham, Essex, HECER, Princeton, Stanford, UCSD, and Universidad de San Andrés for useful conversations and comments. Juan Escobar provided excellent research assistance. Dal Bó is a Research Associate at NBER. Marko Terviö received funding from the European Research Council (ERC Grant Agreement n. 240970).


We present an infinite-horizon planner–doer model of moral standards, where individuals receive random temptations (such as bribe offers) and must decide which to resist. Individual actions depend both on conscious deliberation and on a type reflecting unconscious drives. Temptations yield consumption value, but confidence in being the type of person who resists temptations 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 long-lasting effects on wrongdoing. We show how optimal deterrence can change under endogenous moral costs and how wrongdoing can be compounded as high temptation activities attract individuals with low moral capital.